KfW ifo Credit Constraint Indicator is rising – access to credit is becoming more difficult for SMEs

• In the third quarter, 21.7% of small and medium-sized enterprises reported higher barriers to financing
• Share of SMEs conducting loan negotiations is declining
• Large enterprises can access bank loans more easily again

The coronavirus pandemic continues to dominate business activity in Germany. The pre-crisis level remains a long way off, and rising new infections make the road back increasingly bumpy. The current KfW ifo Credit Constraint Indicator for the third quarter of 2020 shows that the credit market has been effective during the crisis, but the obstacles for SMEs are growing. The KfW ifo Credit Constraint Indicator for SMEs rose by 1.3 percentage points on the previous quarter to now 21.7%, hitting a second consecutive record high.

“Banks are increasingly restrictive in their lending to small and medium-sized enterprises, but they are tightening their lending policy in a measured way”, said Dr Fritzi Köhler-Geib, Chief Economist of KfW. “As the economic situation has improved swiftly and continuously since the April low, in the third quarter the financing requirements of German businesses were also just moderately above average. The share of SMEs that were conducting loan negotiations has even dropped marginally by 1.5 percentage points to 30%. That is a positive signal because it shows that businesses have overcome their worst financial hardship for now. But whether that continues to be the case will depend crucially on the further course of the pandemic, and that uncertainty will continue to weigh on businesses’ investment activity”, said Köhler-Geib.

After rising sharply in the second quarter, the financing barriers for large enterprises decreased (-1.4 percentage points to 15%). The gap in credit access between SMEs and large enterprises has thus widened again.

The current KfW ifo Credit Constraint Indicator highlights different trends across the various economic sectors. While credit constraint decreased across both size classes in the construction and manufacturing sectors, barriers rose for wholesalers and large retailers. Small and medium-sized service providers remain most affected, as more than one fourth of them now face greater difficulty accessing credit.

The KfW ifo Credit Constraint Indicator is available for download at KfW-ifo-Kredithürde.