EquitiesFirst’s position in Europe’s growing alternative finance market
According to a recent paper from the London Business School, alternative financing now accounts for 50% of business debt funding in Europe, marking a fundamental shift in how companies access capital.
The scale of Europe’s investment shortfall has reached critical levels. A September 2024 report by former ECB president Mario Draghi, commissioned by European Commission President Ursula von der Leyen, calls for an additional 800 billion euros (approximately $838 billion) in annual investment — a figure comparable to post-World War II reconstruction efforts. Draghi and others have also raised concerns about the prospect of new trade barriers under a Donald Trump administration as Europe works to close this financing gap.
“Without action, we will have to either compromise our welfare, our environment, or our freedom,” Draghi warned in his report. “If Europe cannot become more productive, we will be forced to choose. We will not be able to become, at once, a leader in new technologies, a beacon of climate responsibility, and an independent player on the world stage.”
Europe’s persistent credit constraints have positioned non-bank lenders as crucial players on the continent. EquitiesFirst, a leading alternative financing provider, offers businesses financing based on publicly traded securities and could emerge as a viable option for businesses on the continent [D(1] in the near future.
The non-bank lending market
Data from the Alternative Credit Council shows that non-bank lenders currently provide $242 billion in financing to more than 4,000 European businesses. This number has grown substantially from just $39 billion a decade ago, with the market expanding at a compound annual growth rate of 20%.
The geographic distribution of this lending shows the United Kingdom leading with 36%, followed by France at 25% and Germany at 11%. The remaining 28% spans other European markets. Current growth trajectories suggest non-bank lenders could deploy over $600 billion within five years and potentially $1.5 trillion by the end of the decade, reaching up to 25,000 European businesses.
Despite this alternative financing boom, the shortfall in traditional financing continues to hinder the European economy, particularly in areas such as tech and medicine. While U.S. private-sector pharmaceutical research accounts for 0.45% of gross domestic product, European investment sits at just 0.11%. The approval process for new drugs in Europe takes an average of 430 days, significantly longer than the 334 days required in the United States.
Non-bank lending in Europe shows distinct patterns across industries. According to the Alternative Credit Council, the financing predominantly flows to business infrastructure and professional services, followed by manufacturing, and health care and life sciences. Technology, media, and telecommunications companies, along with financial services firms, represent other significant recipients of alternative financing.
Companies with access to diverse non-bank financing options show markedly different investment behaviors than those relying solely on traditional bank lending.
Data from the ECB’s Survey on Access to Finance of Enterprises indicates that firms investing in fixed assets typically utilize multiple financing instruments, with more than 60% of businesses accessing a combination of banking products, grants, and alternative financing solutions. This diversification appears particularly crucial for companies engaging in innovation and expansion activities.
The survey also highlights a distinct correlation between financing diversity and business development. Firms expecting growth are significantly more likely to employ multiple financing instruments, suggesting that access to varied funding sources may be a key enabler of business expansion. This finding underscores the potential importance of alternative finance providers like EquitiesFirst in supporting growth-oriented companies.
EquitiesFirst and alternative financing solutions
The ECB’s October bank lending survey found that credit standards for business loans remained tight through the third quarter of 2024, with banks projecting further tightening ahead. This persistent credit squeeze has created demand for financing that could be filled by more specialized financing solutions.
EquitiesFirst’s model allows businesses to secure capital based on the value of their publicly traded securities, enabling short-term liquidity without sacrificing long-term positions.
While traditional bank lending remains a necessary contributor to growth, increasing reliance on alternative financing represents a fundamental shift in how companies access capital. The Alternative Credit Council projects that non-bank lenders could reach 25,000 European businesses by 2030, potentially deploying $1.5 trillion in capital.
But significant challenges persist. The European small and medium-sized enterprise finance gap is estimated at 400 billion euros, and this figure may now be significantly higher due to the lingering impact of the COVID-19 pandemic and subsequent economic pressures.
The ECB’s data shows that financially fragile firms still tend to rely more heavily on informal funding sources, such as family and friends, highlighting the need for more accessible alternative financing solutions. The development of this market could prove crucial in addressing the persistent SME financing gap while supporting Europe’s broader economic transformation goals.
Europe faces what Draghi calls an “existential challenge” — maintaining its social model while competing in an increasingly challenging global economy. The role of alternative financing could become increasingly critical to meeting this challenge.
