Spain: The Funding Of SMEs In Spain: Eternal Unfinished Business?

Now that, according to the macroeconomic data, we are starting to leave behind the crisis period, it is time to take stock of the process of legislation carried out during the last years and, particularly, of the matter, which, year after year, we take forward to September: how to improve the financing of SMEs in Spain.

In a country in which the business world is overwhelmingly made up of small and medium-sized businesses (according to statistics, SMEs represent approximately 99.9% of all companies), any measure that can improve their sources of funding must be welcomed. Even more so when we are emerging from a crisis which is not only economic but eminently financial that has mercilessly restricted the access to bank credit of a business sector that was particularly dependent on this.

At this time the legislator passed Law 5 of 27 April 2015, to encourage business financing, which, besides its ambitious title, had two laudable aims: on the one hand, to try to make banking finance more accessible and flexible to SMEs and, on the other hand, to make progress towards the development of alternative means of funding.

The first innovation in bank financing of SMEs consists of making financial institutions inform an SME of its decision not to renew, terminate or reduce by an amount equal to or greater than 35% the flow of funding that they were providing, with a minimum notice period of three (3) months, sufficient time, in the opinion of the legislator, to find new avenues of funding or adjust their cash flow.

Secondly, the process of re-guaranteeing that the Spanish Re-Guarantee Organisation offers to mutual guarantee companies has been altered, by establishing that the re-guarantor will be responsible on first demand to the creditor in the event of non-performance by the guarantor of his duties.

Both measures that could have been originally described as timid have proved to have a rather limited scope in the enhancement of access to bank funding of SMEs which, if it has improved, it has been more as a result of macroeconomic circumstances than the boost provided by these reforms.

On the other hand, we see a greater scope for innovation introduced by the aforementioned law regarding alternative means of funding. On the one hand we have the attempt to reactivate securitisation, that has historically favoured the growth of funding, by making the operation of these devices more flexible and removing certain obstacles.

Furthermore, reforms in the Stock Market Act have been introduced to encourage the movement of companies that trade in a multilateral negotiation system (such as the MAB (Spanish AIM)) to an official secondary market.

Another of the main innovations is the regulation of the so-called participatory funding platforms including equity crowdfunding and crowdlending. These platforms must comply with a series of requirements to be able to finance their business, by being made subject to the prior approval and supervision of the CNMV (Spanish Securities and Exchange Commission). Even though the adequacy of the maximum limits imposed on investment by non-approved investors as well as the acquisition by projects is debatable, they nevertheless represent a sensible starting point that goes rather beyond what the first legislators of this law predicted.

Finally, substantial changes have been introduced regarding the issuing of bonds. Accordingly, the maximum issuing limit for public limited companies and partnerships limited by shares has been removed, while at the same time, limited liability companies are for the first time able to issue bonds, limiting the issue to a maximum of double the amount of their own funds (unless the issue has specific guarantees attached).

In summary, we can confirm that even though the new law has not represented the boost that was expected vis-à-vis bank financing of SMEs, it is on the other hand a step in the right direction towards the opening of new channels of alternative funding which would allow businesses to diversify their sources of liquidity. In any event, in the next term the legislator ought to continue to work really hard so that next year the access of SMEs to bank financing will not continue to be unfinished business.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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