Intriguing news from Brussels brings hope that there will be some relief to the perennial problem of affordable business finance, which many companies face. Recently published Green Paper proposals for a European Capital Markets Union (CMU), if realised, would result in capital being more readily available to SMEs and reduce reliance on lending from banks.

Less reliance on banking finance

The resultant borrowing environment would closely resemble the current situation in the US, where only 20% of business capital is loaned through banks (compared with around 70% in Europe). Investment funds, private equity and a growth in venture capital would play a far larger part in helping businesses to grow than is currently the case.

Easier access and enhanced growth

Commentators suggest that providing alternatives vehicles to access finance would make it easier for smaller businesses to benefit and bring significant economic benefits across the EU. Hopefully, UK businesses will be able to benefit from the capital available on the European market, rather than relying solely on what’s on offer nationally.

Whilst there is some way to go before the CMU will be sufficiently developed to become operational, the recognition that alternative finance routes are needed in order for businesses to thrive is encouraging. Once comments have been received on the Green Paper, the EU intends to develop an Action Plan and CMU implementation timetable.

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