Modern financing for SMEs. Growth and innovation.
Credit Suisse is striking new paths in corporate finance and is focusing on innovation and growth. In this interview, Head of SME Business Switzerland Andreas Gerber explains why both a simple corporate loan and complex solutions are needed.
How important is the traditional corporate loan in corporate finance nowadays?
Andreas Gerber: Some 90 percent of all corporate financing involves traditional credits, mortgages, current account credits, or lease agreements. Credits offer flexibility and a good balance of both cost and benefit. However, ten percent of entrepreneurs have specific client needs. We are better able to address these using custom solutions such as mid-market lending or ABS financing. These are new, modern forms of financing for specific client needs.
In recent years, several new financing solutions have been created at Credit Suisse. Why has there been so much effort for a niche market?
This allows us to differentiate ourselves from the competition, to provide our clients with comprehensive service, and to gain client proximity. Our flexible financing solutions consistently receive very positive feedback. We are the bank for entrepreneurs – and these are not just empty words. We are fully meeting their needs.
Which clients need these new financing solutions?
Often, it is companies in stages of transformation and expansion that then need capital for strategic implementations. By default, companies with very extensive investments and export-oriented companies require a great deal of financing. Occasionally, SMEs that operate in the Swiss home market also reach their limits with the usual credits, however. For instance, we recently granted three million Swiss francs in financing for a sanitation enterprise's succession solution.
Modern corporate finance at Credit Suisse
Corporate loans are one of many types of corporate finance at Credit Suisse. An overview of potential credits for companies.
Venture capital for start-ups and SMEs in the form of a minority interest or a loan with profit sharing: SVC – Ltd. for Risk Capital for SMEs, a subsidiary of Credit Suisse, has over 130 million Swiss francs in venture capital available (30 million for fintechs).
Venture capital for solid companies: Credit Suisse provides special credit limits of up to 250 million Swiss francs to finance growth, expansion, and acquisitions.
Leasing instead of purchasing: With leasing, the bank purchases capital goods (cars, trucks, machinery, equipment, etc.) at the client's request and loans it to the company to use for a periodic lease payment. This type of financing preserves liquidity and allows the client to remain at the cutting edge of technology.
Major financing needs: If a client requires a very large credit amount, such as for a takeover, Credit Suisse designs a customized credit, organizes the banking syndicate, and processes the credit on behalf of the client.
Financing in the debt capital market: As compared to a credit, one of the aims of an ABS transaction is to obtain less expensive financing. To do so, illiquid assets, such as accounts receivable claims, are converted into fixed-interest securities. One of Credit Suisse's roles is to pool these securities with institutional investors.
Some specific types of financing are rather expensive. Why do entrepreneurs willingly pay such a high price?
Modern financing solutions are interesting for companies since – as custom solutions – they offer more options and flexibility. As a result, companies are willing to pay a higher price. At the same time, the bank takes on more risk with these financing solutions, and this is accounted for. An example of this is syndicated solutions. For larger companies, we are unable to cover the financing alone due to the volume, and we set up a syndicate with third-party banks. The expenses for coordinating this are correspondingly greater, but they are always transparent for the client.
Don't large bank liabilities pose a risk for SMEs?
Each credit is carefully reviewed and, ideally, approved by multiple internal units. This assessment includes the solvency check (balance sheet, income statement) as well as the assessment of creditworthiness (management, products, business model). The client can use the capital granted to ensure its marketability and finance growth and innovation.
The bank also assumes risks with corporate loans. Why is it willing to do so?
Taking on risk has always been part of the business model for banks. The risks we take on are offset by the interest – a risk premium. Credits are one of the central products and services of a full-service bank, and they bring us closer to the client as a partner and as a "house bank."
Modern financing solutions offer companies more options and flexibility
Andreas Gerber, Head of SME Business Switzerland at Credit Suisse
How healthy is leveraged growth?
It depends on various factors. Of course, a company must have the required creditworthiness. If a client is unable to bear or pay back its debts, we do not grant credit. An investment also needs to be comprehensible to us. Competent management is also vital.
Start-ups often require debt capital in particular. Under what circumstances does Credit Suisse grant them a corporate loan?
We are conservative about issuing credits to start-ups. A business plan is not sufficient. We require specific products and services, marketability, and client revenue for a corporate loan. In other words, a start-up has to prove that it can earn money. At the same time, we believe that equity capital is the key financing tool for a start-up. CS acts as an intermediary between clients and potential investors. We have a good network, such as in the area of private equity. With SVC – Ltd. for Risk Capital for SMEs, we also have a fund capable of providing capital in the early stages and during the growth stage.