Refinance debts has become one of the great threats to the Spanish business fabric. It is one of the conclusions of the meeting held this Thursday and organized by the financing company credited and the specialized portal ‘Economist & Jurist’. At a time of relatively low interest rates and the threat of imminent growth in the price of money in Europe, Spain seems to be consolidating itself as the country with the most vulnerable companies to close in the coming months despite the context of general economic recovery. For Jordi Solé Tuyá, partner and executive director of Kreedit, “we find ourselves in a situation in which business viability in Spain depends excessively on refinancing” after a year of setbacks in revenues for most companies, an increase in expenses and awareness of reactivating investments so as not to lose the pace of recovery.
Liquidity problems
Solé warns that many companies have chosen to finance their losses through debt, which makes it possible to dilute the impact over several years, while others have replaced current financing (derived from recurring payments from their customers and whose balance they did not have to never repay) for loans that have to be repaid impenetrably. As a consequence of these financial solutions, SMEs will face most common liquidity problems than before the pandemic.
Caught up
“In the case of those who resorted to ICO loans, despite their 80% guarantee, they find themselves in a situation in which banks are closed to granting financing, especially if they are companies that do not already have an investment ‘ trapped’ to save”, continues Solé.
According to data from the European Central Bank, around 7.1% of small and medium-sized companies are in a “situation of economic vulnerability”. Despite the fact that this has been a historical and endemic evil in the Spanish business network, the parenthesis caused by the pandemic is going to exacerbate the problems in foreseeable second-round effects. “Among Kreedit’s forecasts are a level of banking concentration that will withdraw (even more) liquidity from companies, the exhaustion of ICO guarantees and a constant lack of liquidity in the market to finance companies,” explains Solé. This expert in business financing considers that the 140,000 million euros of the European Recovery Plan (Next Generation EU) will not provide liquidity but only financing for projects. In this sense, they will not be a lifesaver for the so-called zombie companies (with activity but growing losses and therefore condemned to closure).
The latest ‘European Payments Report’ prepared by Intrum reveals that the 72% of SMEs they recognize that they have to accept longer payment terms than they would like. That is one more problem for taking on new projects financed by the public sector.
family financing
Faced with these warnings from professionals closely linked to business financing, experts advise that entrepreneurship focus on private capital from family and friends rather than financing with an inexcusable return. Adapt investments to working capital, Undermining banking operations to preserve the confidence of the banking system and avoid debts with Public Administrations are usually essential. Refinancing is a useful resource if approached in moderation.
The pre-contest with creditors will be the final process for many companies. The latest data from the Central Balance Sheet of the Bank of Spain point out that 19.2% of companies with less than 250 employees closed the year in 2020 in “legal cause of dissolution due to losses”, a situation that occurs only when the valuation of their net worth is lower to half of its social capital, that is, when companies owe more money than they are worth.
During the year 2021, 5,862 bankruptcy proceedings and 27,760 dissolutions were registered in Spain, according to the ‘Study on Bankruptcies and Dissolutions’ carried out by Informa D&B, a leader in the supply of Commercial, Financial, Sectorial and Marketing Information. The increase in the number of contests compared to the previous year was 34%, although in 2020 due to the state of alarm, the data decreased. However, this is the highest amount reached since 2014. Dissolutions, for their part, grew by 20% in the last 12 months and we have to go back to 2013 to find a higher figure.