Euro firms face surging loan rates as SME credit availability falls
Euro area companies saw a sharp jump in borrowing costs in the second quarter, with small businesses bearing the brunt of tighter credit conditions even as broader inflation expectations cooled.
Euro area companies faced a pronounced jump in borrowing costs during the second quarter of 2026. A net 42% of firms reported increases in bank loan interest rates, a significant acceleration from the 26% recorded in the previous quarter. While interest rates spiked, the increase in other financing costs such as fees and collateral requirements actually slowed slightly.
Despite stable overall loan availability, a clear divide is emerging between corporate sizes. Large firms saw credit access improve, with a net 4% reporting easier conditions, while SMEs experienced a tightening to a net minus 4%. This pushed the overall bank loan financing gap slightly higher to 3%, with the general economic outlook remaining the primary constraint on external finance.
The elevated cost of credit arrives as firms signal moderating price pressures across the economy. Companies now expect selling prices to rise by 3.2% over the next year, down from 3.5%, while wage growth expectations eased to 2.5%. Non-labour input costs, including energy, are also forecast to slow to 5.2%.
Despite these near-term improvements in cost expectations, long-term inflation psychology remains sticky. Median inflation expectations held steady at 3.0% for the one and three-year horizons, but edged up to 3.1% for the five-year outlook. A hefty 65% of firms still see upside risks to inflation over the longer term.
Outside of traditional financing, the ongoing Middle East conflict is forcing operational shifts rather than market retreats, with only 8% of firms reducing activity in affected regions. Instead, 36% of companies are hunting for alternative material suppliers, and 31% are investing in energy efficiency. Larger businesses are far more likely to have implemented these defensive strategies than smaller counterparts.
When it comes to capital expenditure, particularly for artificial intelligence, companies remain highly reluctant to take on external debt. An overwhelming 72% plan to fund AI investments entirely through internal cash reserves. These findings highlight a corporate sector prioritizing balance sheet strength over aggressive expansion.
