Small businesses left in the cold as banks cater to wealthy entrepreneurs

In a marked shift away from their traditional role as facilitators of economic growth, major European banks are increasingly prioritizing wealth management services over lending to small and medium-sized enterprises (SMEs). Recent figures from the European Central Bank (ECB) reveal that credit to SMEs declined by 14% year-on-year in the first quarter of 2025, while private banking assets under management climbed by 22%.

Bank executives cite higher profit margins and lower regulatory burdens in wealth management compared to SME lending. “Managing high-net-worth clients’ portfolios demands less capital and delivers steady fee income,” admitted one senior banker at a leading Eurozone lender who requested anonymity. “In contrast, lending to SMEs involves due diligence, ongoing credit risk and stricter capital requirements.”

The consequences for SMEs are severe. Family-owned manufacturers and tech startups report difficulty securing loans for equipment upgrades or expansion. “We applied for a €500,000 loan to purchase new machinery and were told to explore private wealth solutions instead,” said Luca Ferraro, CEO of an Italian precision engineering firm. “Banks no longer see us as growth partners, but as collateralized risks.”

Industry associations warn that this retreat from SME finance threatens Europe’s economic recovery. SMEs account for nearly 60% of private sector employment in the EU and contribute 55% of value added. A sustained credit squeeze could dampen investment, stifle innovation and slow job creation, especially in regions heavily dependent on family businesses.

Regulators have taken notice. The ECB’s Supervisory Board is reportedly considering new guidelines to incentivize SME lending, potentially including lower capital charges or dedicated lending quotas. Meanwhile, Brussels lawmakers have drafted proposals to require banks to report detailed data on SME versus wealth management revenues.

Some banks are exploring hybrid models, pairing corporate lending with wealth advisory services for business owners and their families. “We’re piloting a ‘Whole Business’ proposition, offering both credit lines and tailored investment advice,” explained Marie Keller, head of private banking at a French universal bank. “This integrated approach aims to retain SME clients while growing our wealth management book.”

Critics argue that such offerings still prioritize affluent entrepreneurs at the expense of broader enterprise needs. “The focus remains on client net worth, not business potential,” noted Dr. Hans Vogel, an economist at the European Policy Centre. “True support for SMEs would mean streamlined loan approval processes and fair pricing, not up-selling to wealth products.”

As the EU debates regulatory interventions, SMEs are seeking alternative finance sources, including fintech lenders, crowdfunding platforms and peer-to-peer networks. However, these channels often charge higher rates and lack the scale to replace traditional bank credit fully.

For now, Europe’s small businesses face a critical crossroad: adapt to new financing paradigms or risk stagnation. The future of the EU’s economic dynamism may well depend on whether policymakers and banks can rebalance priorities—and restore SMEs to their rightful place at the heart of the continent’s growth strategy.