Private Debt as a driver of economic growth

The important role of Private Debt

On April 18, 2024, I had the opportunity to present to a group of 50 investors and stakeholders why Private Debt as an asset class is so important for the Netherlands. The insights I shared are based on direct real-world experience, not theoretical research.

Why SMEs choose Private Debt

Despite the fact that loans through Private Debt are often more expensive than bank loans, many SMEs still opt for them. The main reasons are:

• Speed of funding:

  The banking decision-making process can be lengthy. If the entrepreneur runs into a financing reservation, the bank cannot meet the rapid need for financing. Private Debt can.

• Sector-specific policymaking:

  Banks sometimes exclude entire sectors or types of investments from financing. Or banks decide to adjust their balance sheet ratios and reduce their funding share in certain sectors. This also makes relatively easy refinancing impossible.

• Exclusion business structure:

  Some business structures get stuck in the bank’s application system. Certain structures with shareholders or limited liability companies do not fit into the system and are excluded.

• Flexibility in assessment:

  Risk assessment with nonbank lenders is often more attuned to the realities of entrepreneurship. Non-bank financiers are closer to the fire.

• Strategic investments:

  SMEs with strategic plans that do not generate immediate cash flow but are valuable in the long term are often turned down at the bank. The non-banking sector does weigh in on that strategy.

Impact on the Dutch economy

SMEs account for 72% of employment, 62% of value added and 60% of Dutch exports. And just when you need to evolve as an SME to connect with challenges in the market, such as sustainability, artificial intelligence, and automation, Private Debt offers the deciding factor to innovate and grow. So every investor in Private Debt not only has a return for himself, but also creates value for the Dutch economy. After all, there is substantially less business if those entrepreneurial plans do not go forward because of limited access to capital.

Call to economic scientists

A recent article in the April 22, 2024 Financial Times discusses the growth of the non-banking sector, but it does not address its impact on the economy. I invite economic scholars to explore this issue further and analyze in depth the effects of Private Debt on the Dutch economy. Or if there is already such a study, I’d love to hear that too!

Private Debt is more than just an alternative form of financing: it is an essential driver of economic growth, especially for SMEs that need to keep up with market dynamics. It is time for investors and more specifically investors with a focus on sustainability and ESG to recognize the value that this form of financing brings in supporting innovation and development in the Netherlands!

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