How surety helps SMEs navigate a changing economic landscape

Of the 3,800,000 companies in France, only 3.7% are small- and medium-sized enterprises (SMEs) excluding microenterprises according to Insee. In Germany, on the other hand, there are more than 470,000 SMEs within the construction and engineering/machinery sector alone. Wherever they operate, these compact, flexible, but often vulnerable, companies encounter specific business challenges due to today’s changing economic landscape. These include rising interest rates and supply chain problems. Another issue is growth limitations, which can occur because of classic risk scenarios, as well as difficulties in obtaining financing for operating their businesses.

Against this backdrop, surety has an important role to play. Thanks to the flexibility and security it provides, it can help SMEs overcome challenges and grow their business. Additionally, by spreading and sharing the risk, surety bonds from trade credit insurers can be a valuable complement to traditional financing options.

In most cases, banks are the first port of call for companies when a contractor or beneficiary requests a bond.

“This is particularly true for recently established companies, in which short- and mid-term cash facilities are often required,” says Victor Maxence-Lecomte, Surety Business Manager at Allianz Trade France. “Banks can support new companies on the basis of their initial business plans, and their broad-spectrum solutions mean they can support companies with everything from operating and investment loans  to bonds and guarantees. In France, banks hold 60% of the market share.”

However, the wide range of solutions offered by banks also means they are less specialized than surety bond providers. “Allianz Trade’s expertise in bonds and guarantees enables us to be extremely responsive to the needs of our customers, which is particularly important for SMEs,” explains Christian Lüdtke, Head of Bonding SME at Allianz Trade Germany.

Despite the clear benefits, studies indicate that the use of bonds from insurers is not that common among SMEs, many of whom are unaware of recent innovations and the perks of using a non-bank provider. “In Germany, a bond is actually often referred to as a ‘Bankbürgschaft’ – so the very name implies that banks have to be involved,” Christian says.

“The main reason a company would choose to work with insurers rather than banks is to relieve existing cash facilities from bonds and create liquidity,” Victor continues. “They can gain independence and diversify their portfolio of financial partners by taking out a new line of credit to finance projects while reducing their commitments to the bank. As a result, companies can allocate other needs, such as short- medium- and long-term credit to the bank to optimize financing.”

“Another reason is the speed, specialization and innovative technology offered by insurers,” Christian adds. “At Allianz Trade, we have a digital tool to request and release bonds and manage portfolios. It helps customers receive their bond release form without delay, thereby avoiding additional payments.”

With fewer legal constraints than banks, insurers have the advantage of being able to offer bigger upfront bonds, and so provide an invaluable complement to traditional financing options. By combining both, SMEs can ensure safe, steady, and risk-mitigated growth. When they choose to work with Allianz Trade, they enhance that security even further by putting their bonds in the hands of a long-term, trustworthy partner whose dedicated teams have local and global expertise and years of experience.