Before the crisis, survey evidence indicated that the main source of SME finance was retained earnings (around two-thirds). 10% was in the form of trade credit from suppliers or customers, and around 10% from external non-bank sources. About 15% of SMEs’ capital investment and operating expenses were financed with bank loans and credit lines.
This average dependence on bank financing was as low as 8% in Portugal and as high as 22% in Ireland3, indicating that small businesses relied substantially on the smooth functioning of the euro area’s banking sector. At the same time, there was a strong increase in credit growth in the euro area following a persistent easing of bank lending standards.