Europe Isn't One Market: What US Banks Miss in Expanding SME Lending

When U.S. banks expand into Europe for small and medium-sized enterprise (SME) lending, they often rely on an incorrect assumption that the continent functions as a single market.

This misconception can lead to costly mistakes in operational and underwriting decisions, according to Luca Terragni, co-founder of AI-powered credit intelligence startup Prestatech. He notes that Europe has 27 regulatory regimes, data environments, and SME profiles, which demand caution and local specifications.

Terragni advises U.S. banks to budget for time, not just money, when navigating the complex European market. The European Central Bank's Q1 2026 bank lending survey found euro-area banks tightening overall lending terms for firms despite shifting demand towards working-capital financing.

The lack of a standardized credit scoring system in Europe is another significant challenge for U.S. lenders. Unlike FICO scores, which are widely used in the United States, European SMEs have thin credit files and varying bureau coverage. Terragni warns that trying to apply a 'pull a score, apply a threshold' underwriting model will result in either rejecting half the market or approving the wrong half.

Prestatech's core thesis is that cash flow data, pulled directly from transaction history, is a more reliable underwriting signal than credit scores. This approach becomes even more crucial when dealing with non-standardized credit infrastructure.