ECB survey finds tighter lending conditions for euro area firms

Euro area companies reported tighter lending conditions and higher borrowing costs during the second quarter of 2026, while financing needs edged higher and inflation expectations remained broadly stable, according to the European Central Bank’s (ECB) latest Survey on the Access to Finance of Enterprises (SAFE).

The survey found that firms continued to experience more restrictive bank lending conditions, particularly through higher interest rates and stricter pricing and non-pricing loan terms.

The ECB said a net 42 per cent of firms reported higher interest rates on bank loans, up sharply from 26 per cent in the previous quarter.

The increase was reported by both small and medium-sized enterprises (SMEs) and large companies.

At the same time, a net 31 per cent of firms reported higher financing costs through charges, fees and commissions, although this was lower than the 37 per cent recorded in the previous quarter.

Collateral requirements also continued to tighten, with a net 10 per cent of firms reporting increases, down from 14 per cent in the first quarter of 2026.

Financing needs increased modestly during the quarter, with a net 2 per cent of firms reporting higher demand for bank loans, compared with no net increase in the previous survey.

The availability of bank loans remained broadly unchanged overall, with a net balance of minus 1 per cent compared with minus 3 per cent previously.

However, the ECB highlighted a growing divergence between SMEs and larger businesses.

While large firms reported improved access to bank loans, with a net positive balance of 4 per cent, SMEs experienced weaker availability, with a net balance of minus 4 per cent.

As a result, the bank loan financing gap, which measures the difference between firms’ financing needs and the availability of loans, widened slightly to 3 per cent from 2 per cent in the previous quarter.

Looking ahead, fewer companies than before expect external financing conditions to deteriorate.

The general economic outlook remained the main obstacle to obtaining external finance, with a net 29 per cent of firms identifying it as a constraining factor, up from 26 per cent in the previous survey.

At the same time, businesses reported a further improvement in banks’ willingness to lend, with a net positive balance of 6 per cent compared with 5 per cent previously.

Nevertheless, firms became slightly more pessimistic about their own prospects.

A net 10 per cent said their company-specific outlook, including expected sales and profits, would have a more negative impact on access to external finance, compared with 8 per cent in the previous quarter.

Businesses also became more optimistic about future inflation and cost pressures.

Companies now expect selling prices to increase by 3.2 per cent over the next 12 months, down from 3.5 per cent in the previous survey.

Expected growth in non-labour input costs, including energy, eased to 5.2 per cent from 5.8 per cent.

Wage expectations also moderated further, with firms forecasting wage growth of 2.5 per cent compared with 2.8 per cent previously.

Inflation expectations remained broadly stable across all time horizons.

Median one-year and three-year inflation expectations remained unchanged at 3.0 per cent.

Median five-year inflation expectations edged up to 3.1 per cent from 3.0 per cent.

The ECB said firms’ assessment of longer-term inflation risks was largely unchanged, with 65 per cent continuing to see upside risks to inflation over the next five years.

The survey also examined the impact of the ongoing war in the Middle East on euro area businesses.

Many firms reported adapting their operations in response to geopolitical tensions.

A total of 36 per cent said they were seeking alternative suppliers for inputs and materials, while 29 per cent were looking for alternative energy suppliers.

Meanwhile, 31 per cent said they were investing in greater energy efficiency.

Another 21 per cent reported increasing inventories or building stockpiles, while 15 per cent said they were revising insurance or trade finance arrangements.

Only 8 per cent said they had reduced or suspended activity in affected export markets.

The ECB found that large companies were generally more likely than SMEs to have already adopted or planned measures to cope with geopolitical disruptions.

The survey also included questions on how companies intend to finance investments in artificial intelligence over the coming year.

Internal funds were by far the most common source of financing, cited by 72 per cent of firms.

Among external financing options, around 16 per cent expected to rely on bank loans, grants or leasing for AI investments.

Equity or venture capital was expected to be used by 6 per cent of firms, while debt securities were the least popular option at just 1 per cent.

The latest SAFE survey represents the 39th round of the ECB’s business financing survey.

It was conducted between May 21 and June 26, 2026, covering economic and financing developments during the period from April to June 2026.

The survey included 5,087 euro area firms, of which 4,679, or 92 per cent, employed fewer than 250 people.