Credit Hurdle –
what is it?

Key facts at a glance:

• The KfW-ifo Credit Hurdle is an indicator of how easily companies can access bank financing.

• For the survey, companies that recently conducted loan negotiations are questioned quarterly about their experience.

• As the credit hurdle rises, alternative financing options beyond traditional banks become increasingly important.

What Is the Credit Hurdle?

The KfW-ifo Credit Hurdle was developed as an indicator to map companies' access to bank loans. The aim is to identify potential credit crunches early. For the regular survey, companies that have conducted loan negotiations with banks in the preceding three months are questioned. The "credit hurdle" then indicates the percentage of companies that describe bank behaviour in loan negotiations as "restrictive".

On the Methodology of the Credit Hurdle

Until 2017, the survey questions did not target the individual experiences of companies in loan negotiations. A revision of the methodology followed. Today, approximately 9,000 companies from various economic sectors are surveyed quarterly for the KfW-ifo Credit Hurdle. The majority of participants are from the Mittelstand — companies with no more than 500 employees and a maximum annual turnover of 50 million euros. Survey results are differentiated by company size and sectors.

How Is the Credit Hurdle Developing?

Regardless of short-term fluctuations, the KfW-ifo Credit Hurdle has recently shown a trend: while financing barriers for large companies have tended to decrease, access to debt capital has worsened for small and medium-sized enterprises. Also in light of the challenges posed by the COVID-19 pandemic, the hurdles for SMEs in loan negotiations have risen. It is precisely the Mittelstand — under pressure from digital transformation, structural change, generational transitions, and recession — that needs capital for liquidity preservation, investments, or growth.

The Credit Hurdle Underscores the Importance of Alternative Financing

The credit hurdle is a key indicator of how well the SME sector is supplied with financing options. When the hurdle rises in the area of traditional debt capital, financing alternatives are needed.

In recent years, new approaches have become established. For example, loans for SMEs are arranged via online platforms. In contrast to typical bank loans, the processes are fully digitalised and the procedures accelerated. With a continuing rise in the credit hurdle — especially in the Mittelstand — the importance of complementary solutions and alternative capital will gain even more significance.