According to the European Central Bank, micro enterprises (defined as those with fewer than 10 employees) face higher borrowing costs and more stringent collateral requirements than larger companies.
The European Investment Fund reports that only 6% of micro and small businesses in the European Union use external financing, compared to 36% of large companies.
The COVID-19 pandemic has further exacerbated financing challenges for European micro companies, with many needing help to access government support programs and traditional bank loans.
Challenges for Micro Companies in Europe to Get Financing
“One of the main challenges for European micro companies to get financing is the lack of collateral or credit history, making it difficult for them to secure loans from traditional banks” says Mantvydas Stareika, CEO of CapitalBox.
According to his opinion as a result, micro companies may have to rely on alternative sources of financing, such as crowdfunding or microloans, or seek support from fintech organizations or government programs.
In addition to this, a survey by the European Central Bank, more than half of micro-enterprises in the Eurozone had difficulty obtaining financing from traditional banks in 2020. Another challenge is the complex and expensive regulatory environment, making it difficult for small businesses to navigate the loan application process.
Key Facts from Markets
According to a report by the European Investment Fund, alternative financing sources such as crowdfunding, peer-to-peer lending, and invoice financing have become increasingly popular in Europe in recent years. In 2020, the alternative financing market in Europe grew by 9% to reach €18.2 billion in funding raised. The market's largest segment was peer-to-peer lending, accounting for 45% of the total funding raised.
Is Digital Lending Important to Micro Companies?
Digital lending is becoming increasingly crucial to European micro companies, as it offers a convenient and accessible alternative to traditional bank loans. According to a survey by the European Investment Bank, 54% of small and medium-sized enterprises in Europe have used digital lending platforms, and 70% of those that have used them reported a positive experience. Digital lending platforms offer faster approval times and more flexible loan terms than traditional lenders, making them an attractive option for micro companies.
How Does Trend Change for Trust in FinTech in Europe?
According to Mantvydas Stareika trust in FinTech in Europe is generally increasing as more consumers and businesses become familiar with these alternative financial services. ”Survey by ING, 57% showed that Europeans believe that FinTech companies will become more critical than traditional banks in the next five years. However, some scepticism still surrounds using digital platforms for financial transactions, particularly among older consumers and those with limited digital literacy”.
Why FinTech is Better than Traditional Banks?
FinTech companies are often more innovative and agile than traditional banks, allowing them to offer more flexible and personalised financial services. They can also provide faster and more convenient access to financing without the need for collateral or a personal guarantee. Additionally, FinTech companies may offer lower fees and more transparent pricing than traditional banks. According to a survey by Deloitte, 82% of consumers in Europe believe that FinTech companies provide better rates and fees than conventional banks.
@CapitalBox is one of Multitude's business units and the leading European FinTech SME Lender, providing SMEs across Europe with fast and easy working capital, helping them to grow their businesses and improve their communities. Multitude, is a fully regulated growth platform for financial technology and enables a range of sustainable banking and financial services to grow and scale.
Visit www.capitalbox.com to speak to an expert today and how CapitalBox can help you with the financing for your business.
Disclaimer: The information provided in this article is intended for general informational purposes only. It is not intended to be, and should not be taken as, professional or financial advice.