Abolition of Pledge Prohibitions a Major Step for SME Financing

Good news! End of June, the Dutch House of Representatives approved the Act on the Abolition of Pledge Prohibitions. This is crucial for the much-needed cashflow space for small and medium-sized enterprises (SMEs). In short, this means that companies can no longer prohibit their suppliers from pledging invoices. It is expected that this will create up to 1 billion euros in additional financing space for SMEs.

Entrepreneurs’ organizations MKB-Nederland and VNO-NCW, together with other (industry) organizations such as SMF (Stichting MKB Financiering), have advocated for years for the abolition of pledge prohibitions. As a result, SME entrepreneurs will be paid faster and will have more working capital.

No Transfer Restrictions
Entrepreneurs have long been frustrated that (large) clients can include in their purchasing conditions that their suppliers cannot transfer the claims they have against them to other parties (‘pledge prohibition’). This makes it impossible for banks and factoring companies to finance these claims and hinders alternative forms of financing.

Liquidity
For entrepreneurs, pledge prohibitions cut off an important instrument for attracting liquidity. The law passed in the House of Representatives the day before yesterday makes it impossible to exclude the transferability or pledgeability if the monetary claim is in the name and arises from the exercise of a profession or business.

Faster Financing
According to all involved organizations, the abolition of pledge prohibitions is an essential step for the financing of SMEs. This will not only allow entrepreneurs to get paid faster, have more working capital, and have more credit space – which was already estimated at 1 billion euros in 2016 – but it also potentially allows new and alternative financing providers to move to financing more quickly. It also helps reduce the risk of company insolvency.

Need Working Capital?
Contact us. Tailored to your company’s needs, we can provide you with good advice on the possibilities for your situation. Call us at +31 88 5054700 or email info@modintcredit.com.