European small businesses finally get some love—but not that much

July 31, 2013
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July 31, 2013
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interest rates on loans to small medium sized businesses euro area countries

There’s finally some relief for euro-area small businesses—but it’s paltry at best.

According to data released today from the European Central Bank (ECB), interest rates on loans of up to €1 million ($1.33 million)—the kind small and medium-sized businesses are likely to take out—fell across the euro area in June, from an average of 3.85% per year to 3.72% per year. Even more importantly, rates on those loans fell most sharply in some of the countries that have been hardest hit by the euro-zone crisis: Ireland, Portugal, and Cyprus.

Economists and politicians alike consider the lack of funding for small businesses to be one of the biggest problems facing the euro-zone economy right now. Although massive corporations are also important, smaller enterprises form the backbone of the economy and employ most of the population.

Unfortunately, these small companies are also considered higher risk. Peripheral European banks already concerned about the bad loans on their books have cut back on risky lending, leaving small businesses in a pickle. This month, the ECB announced a plan to encourage banks to lend more to small businesses, but it’s not clear yet whether it will bear fruit.

Still, although these businesses may now be able to borrow at slightly better rates, the status quo isn’t pretty. A Cypriot company borrowing €1 million has to pay double the interest rate that a French one does .

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