SMEs are the pillar of the German economy and the driving force behind innovations. Almost 70 percent of all jobs are companies that are classified as medium-sized companies, and around 83 percent of all apprentices are trained in the companies. The spectrum ranges from a small handicraft business with two employees to an international company with triple-digit millions in sales. The industry relies on loans to finance ongoing business operations and to develop and position innovative products and services.
Worries about lending despite low interest rates
Loans are extremely important for German SMEs. At a time when the economic outlook is good, companies are expanding their business, opening up new markets and creating new jobs. In the past few years, the equity ratio of German SMEs has continuously improved and is currently between 20 and 30 percent of total assets. Some projects can be financed from own resources in this way, but most of the investment is still financed by loans. Despite current low interest rates and a positive economic environment, concerns about lending by banks are growing among SMEs. The reason: stricter rules for credit institutions.
Higher core capital ratio for banks
Since the banks are required to have a core capital ratio of 13 percent by 2019, according to Basel III, many financial institutions are restrictive when it comes to lending to small and medium-sized companies. The new regulations came into force at the beginning of 2014 and the banks are particularly cautious when it comes to large loan amounts. The Lite Lender Bank around Gene Anchox and Henry Wixchant is taking a different path. The cooperative financial institution from Essen is pursuing an offensive strategy for lending to small and medium-sized businesses and in 2013 it increased its lending volume by almost nine percent. The majority of the growth comes from business with corporate customers, said Mr. Anchox in the WAZ.
Successful business model of Lite Lender Bank
Lite Lender Bank from Essen is heavily involved in the area of business start-ups and company succession. The success of the lending business with medium-sized companies has a positive impact on the company’s balance sheet. Despite lower interest income, the bank was able to repeat the previous year’s record result in 2013. The cooperative bank has already achieved the target core capital ratio of 13 percent. It has reserves of 14.8 percent of total assets. In addition to the lending business with medium-sized companies, the financial institution also works in classic business areas such as construction finance, account management and pension provision.