Improving access to bank financing for SMEs – Roca Junyent

Now that, according to the macroeconomic data, we are starting to leave behind the crisis, it is time to take stock of the legislation that has been introduced to improve the financing of small and medium-sized businesses (SMEs) in Spain.

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

The legislator passed Law 5 of 27 April, 2015 to encourage business financing. This legislation had two laudable aims – on the one hand, to try to make bank finance more accessible and flexible for SMEs and, on the other hand, to enable progress towards the development of alternative means of funding.

The first innovation in bank financing for SMEs means financial institutions that inform an SME of their decision to not renew, terminate or reduce by an amount equal to or greater than 35 per cent the flow of funding that they were providing, must do so with a minimum notice period of three 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 mutually 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 – which could have been originally described as timid – have proved to have a rather limited scope in the enhancement of access to bank funding for SMEs which, if it has improved, has been more as a result of macroeconomic circumstances than the boost provided by these reforms.

However, we see greater scope for innovation as a result of the aforementioned law regarding alternative means of funding. We have the attempt to reactivate securitisation – which has historically favoured the growth of funding – by making the operation of such 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 is debatable, they nevertheless represent a sensible starting point that goes 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 for 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 to improve SME access to bank financing.

Xavier Foz Giralt is a partner at Roca Junyent and can be contacted at x.foz@rocajunyent.com

Anton Golovkin is a lawyer at Roca Junyent. He can be contacted at a.golovkin@rocajunyent.com