Press Release: Financing European Business

Published: 02 November 2020

Non-bank lending holds the key to Europe’s post-COVID recovery for SMEs

  • Non-bank lenders currently provide $242bn of finance to European businesses
  • Reforming ELTIF and boosting non-bank lending could see $1.5tn invested by 2030
  • Reducing barriers to non-bank lenders is central to development of European capital markets

LONDON, 02 November 2020:  The Alternative Credit Council (ACC) has published a roadmap to reform the European Long-Term Investment Fund (ELTIF) and recommends additional policies to boost non-bank lending in Europe. 

The European market for non-bank lending has grown 20% year on year during the last decade and now stands at $242bn[1].  However, reforms are needed to maintain this growth rate as Europe still has among the highest barriers to non-bank lending in the world. If successful, these reforms could see lenders invest $1.5tn in more than 25,000 European companies by 2030.

European businesses often lack access to the capital needed to finance innovation and growth, despite the strong bank presence in many markets. It is estimated that European companies currently face a finance gap of at least €400bn.[2]

Increasing the flow of finance from capital markets will increase the availability of capital to SMEs at a time when they need it most.  SMEs and mid-market companies underserved by traditional lenders stand to benefit most from the growth of non-bank lending in Europe.   

Maintaining the stability of the AIFMD framework while reforming the ELTIF regime will be central to realising this potential.  An enhanced ELTIF regime will support greater cross-border lending in Europe and unlock retail capital as a new source of finance for businesses. 

Reducing additional barriers to non-bank lenders is necessary for the development of European capital markets.  The roadmap includes key recommendations to address long term challenges in the direct lending and secondary loan markets.  Implementing these reforms will stimulate the European non-bank lending market and support a sustainable recovery across the continent.

Jiří Krόl, Global Head of the Alternative Credit Council commented: “The AIFMD framework acts as a superstructure for all types of alternative investments, including loans to businesses. This framework needs to remain stable and not be disrupted by the upcoming review. We strongly support the European Commission’s initiative to amend the ELTIF framework, which exists solely to provide much-needed finance to smaller and mid-sized companies who are unable to access public markets or bank finance . Now more than ever we cannot ignore the potential that non-bank lending has to support businesses and livelihoods. We hope that our report summarises the key steps that should be urgently taken to ensure businesses can access the capital they need to thrive in a post-COVID economic recovery.”


Media contacts

Hume Brophy, [email protected]


Editors notes

What are ELTIFS?

European Long-Term Investment Funds (ELTIFs) were introduced in 2015 to increase the amount of non-bank finance available for companies investing in the real economy. ELTIFs are collective investment vehicles that can raise capital from both retail and institutional investors who are willing to invest in smaller and mid-sized businesses (defined primarily as non-listed companies). ELTIFs are a form of Alternative Investment Fund (AIF) and must therefore be managed by an Alternative Investment Fund Manager (AIFM). This means that ELTIFs and ELTIF managers are subject to a robust EU regulatory and supervisory regime.

What is holding ELTIFs back?

Despite the substantial growth of capital allocated to European based lending strategies by asset managers and their investors during the last decade, ELTIFs have not been the vehicle of choice to invest this capital. There are currently only 27 active ELTIFs providing less than €10bn equity and debt finance to SMEs across Europe.[3] This is despite some positive elements of the ELTIF, most notably the ability to originate loans on a cross-border basis. ELTIFs have therefore fallen short of expectations and the European Commission’s High-Level Forum is right to highlight the need for reform.

The primary challenge limiting greater take-up of ELTIF by asset managers and investors lies in the restrictive operating requirements that the ELTIF Regulation prescribes. These include the fund maturity, eligible assets, liquidity profile and leverage of the fund. In addition, safeguards that accompany the distribution of ELTIFs to retail investors – for example, suitability investments and marketing requirements – have diminished the attractiveness of ELTIF to its target market.

The final factor limiting the take up of ELTIF is how the vehicle attracts Withholding Tax (WHT). This makes is harder for an asset manager to achieve ‘tax neutrality’ for their investors. This simply means that the investors would pay no more tax than they would if they were to invest directly, rather than through a fund or other investment entity. These limiting factors make ELTIFs inefficient for investors seeking exposure to longer-term or illiquid assets such as SME loans or infrastructure investments.

Despite these challenges, the potential ceiling for ELTIFs to be a vehicle for SME finance is extremely high. In the United States, investment fund vehicles known as Business Development Companies (BDC) are providing more than $100bn worth of finance to SMEs with an estimated 12,500 businesses benefitting from this capital.[4] ELTIFs currently provide only a fraction of that amount in Europe, despite BDCs having many similarities with ELTIFs. A reformed and well-functioning ELTIF regime has the potential to achieve similar success to BDCs within 5-10 years. Unlocking this potential will make a material difference to European SMEs and support European citizens looking to save and invest.

About ACC

The Alternative Credit Council (ACC) is the global body representing asset management firms in the private credit and direct lending space. It currently represents over 170 members that manage $400bn of private credit assets. The ACC is an affiliate of AIMA (the Alternative Investment Management Association). It is governed by its own board which ultimately reports to the AIMA Council. ACC members provide an important source of funding to the economy. They finance mid-market corporates, SMEs, commercial and residential real estate developments, infrastructure and the trade and receivables business. The ACC provides guidance on policy and regulatory matters, supports wider advocacy and educational efforts and produces industry research to strengthen the sector's sustainability and economic and financial benefits. Alternative credit, private debt or direct lending funds have grown substantially in recent years and are becoming a key segment of the asset management industry. The ACC seeks to explain the value of private credit by highlighting the sector's wider economic and financial stability benefits.

About AIMA

The Alternative Investment Management Association (AIMA) is the global representative of the alternative investment industry, with more than 2,000 corporate members in over 60 countries. AIMA’s fund manager members collectively manage more than $2 trillion in hedge fund or private credit assets. AIMA draws upon the expertise and diversity of its membership to provide leadership in industry initiatives such as advocacy, policy and regulatory engagement, educational programmes and sound practice guides. AIMA works to raise media and public awareness of the value of the industry. AIMA set up the Alternative Credit Council (ACC) to help firms focused in the private credit and direct lending space. AIMA is committed to developing skills and education standards and is a co-founder of the Chartered Alternative Investment Analyst designation (CAIA) – the first and only specialised educational standard for alternative investment specialists. AIMA is governed by its Council (Board of Directors). For further information, please visit AIMA’s website,