copy the linklink copied!15. France
copy the linklink copied!Key facts on SME financing
France has approximately 4 million small and medium enterprises (SMEs). They account for 99.9% of all enterprises.
Outstanding SME loans increased by more than 4.3% between 2017 and 2018, reaching EUR 254 135 million in 2018. After having decreased between 2014 and 2017, the spread between interest rates charged to SMEs and to large firms increased in 2018, reaching 0.45 percentage points. Furthermore, SMEs’ access to bank lending remains high: 88% of SMEs' requests for cash credits were fully or almost fully granted as of Q4 2018.
Private equity investments in French firms have continued to increase in 2018 to EUR 14.7 billion, up 2.8% compared to 2017. The average yearly growth rate over 2013-2018 is around 16.4%.
Factoring volumes have continuously increased in France since 2009.
Payment delays reached 13.3 days in 2015, the highest since the crisis, and have been steadily decreasing since 2015 to just under 11 days in 2018.
For the third year since recovery, the number of SME bankruptcies has remained under 60 000, staying stable over 2017-2018 at around 54 000.
In terms of government policies responding to the financing constraints faced by SMEs, in 2018, credit mediation continued to assist French enterprises via an online platform. In line with the trend from 2017, the number of requests has continued to decrease in comparison with previous years, partly due to the better dynamism of economic growth, as well as to the overall global easing of access to bank financing. The share of mediation applications that are accepted stabilised at around 66% in 2018.
The Government is also involved in reducing business-to-business payment delays. The transparency, anti-corruption and economic modernisation law enacted in December 2016 strengthened the legislative framework to fight against business-to-business payment delays. The maximum fine for firms that do not respect legal payment delays was raised to two million. Moreover, a “name and shame" procedure was introduced. Henceforth, there is a systematic advertising of decisions on fines on the website of the Ministry of Economy and Finance. As a result, three firms were required to pay record fines of more than EUR 500 000 in 2018. It remains the case that the largest firms are responsible for the largest payment delays. While the longest delays (superior to 30 days) have decreased in number since 2017, the share of firms with timely payments has decreased from 44% to 41.8%.
Better access to financing for very small firms has also been the focus of public policy. Since 2016, Bpifrance has distributed online development loans to address the investment financing needs of firms from 3 to 50 employees with tangible and intangible investment projects. This measure, implemented in some regions, is being expanded and diversified in certain regions. In addition, the Banque de France set up a network of correspondents in every region since 2016 to break the isolation of entrepreneurs and to solve financing issues.
copy the linklink copied!SMEs in the national economy
France has approximately 4 million small and medium enterprises (SME). They account for 99.9% of all enterprises. Among SMEs, micro-firms dominated the business landscape, comprising 97.2% of all firms and 97.4% of SMEs in 2016. French SMEs employed 48.2% of the workforce and accounted for 42.8% of value added in 20161.
copy the linklink copied!SME lending
The Central Credit Register of the National Bank of France collects monthly data on loans over EUR 25 000 granted to enterprises (legal units). The data include both, loans drawn (utilised) and undrawn (not utilised), for enterprises resident in France. Data on both loans to all firms as well as on loans to SMEs (both independent and belonging to a group, but excluding individual entrepreneurs), exist.
The stock of outstanding business loans to SMEs rose steadily between 2007 and 2018 by about 3.2% every year on average, with stronger increases towards the end of the period. The growth rate was superior to 3% for the third year in a row in 2018. The share of SME loans in the total outstanding loan stock (20.2% in 2018) has remained roughly constant over 2012-2018 period at around 20%, with a slight but stable decrease since 2014. The share of short-term loans in total SME loans dropped modestly in 2018, from 21.2% to 20.3%.
copy the linklink copied!Credit conditions
France has detailed data on drawn loans and undrawn loans. An increase in the proportion of all drawn loans to all loans (both, i.e. the sum of drawn and undrawn) indicates a higher degree of utilisation and hence tighter lending conditions, as well as a worsening of credit availability as has been observed in 2008-09, and again at the end of 2011, though less severely. Since 2012, however, the credit conditions measured by these trends show a relative stabilisation. The utilisation rate stayed constant in 2018 at 86.8%.
As in most European countries, interest rates for both SMEs and large firms dropped steeply in 2009, as a response to the monetary easing of the European Central Bank (ECB). After a slight uptick in the interest rates in 2011, this decrease continued steadily until 2017. Although interest rates for firms of all sizes declined over this period, this evolution was much more pronounced for large firms than for micro-enterprises (employing ten employees or less) and the spread between interest rates charged to SMEs and to large firms remained important until 2014. Since 2014, the interest rate spread has decreased from 0.8% in 2014 to 0.4% in 2018. The interest rate spread increased slightly in 2018 from 0.3% to 0.4%, reflecting a slight increase in the interest rate for SMEs. Interest rates for large firms (1.0% in 2018) have continued to decrease, consistent with the wider trend since 2011.
The situation of SMEs and very small enterprises (VSEs) with respect to access to bank finance continues to improve in France, as it was the case in previous years: SMEs' access to bank lending has been satisfactory, illustrated by a continuous progression of credit loans and an overall easing of conditions despite the slight increase in interest rates for SMEs in 2018. The rejection rate, now at 4.36%, has continued to decline, in line with the trend since 2012. As of Q4 2018, around 88% of SMEs' requests of cash credits were fully or almost fully granted, which is the highest level ever reached by this indicator. Meanwhile, more than 95% of SMEs requests of investment loans were fully or almost fully served, a figure which has remained stable since the beginning of 20172.
copy the linklink copied!Alternative sources of SME financing
Invested amounts in private equity in French firms continued to increase in 2018, reaching EUR 14.7 billion, + 2.8% compared to 2017, and are now well above average levels before the financial crisis (EUR 10 billion in average between 2005 and 2008). The average yearly growth rate over 2012-2018 is around 16%, demonstrating the strong expansion of this sector. The number of firms which are financed via venture capital funds increased for the third year in a row, from 2 142 in 2017 to more than 2 200 in 2018. More than half (53%) of the amounts invested were in firms that opened their capital for the first time in 2018. Among these, 78% are SMEs or start-ups.
Capital financing by financial markets still remains marginal for SMEs. 13 IPOs on Euronext and Euronext Growth took place in 2017 (18 in 2016). However, the average number of IPOs per year between 2010 and 2017 is about 20. The amounts raised in 2017 reached EUR 3.18 billion on Euronext and Euronext Growth (Observatoire du financement des entreprises par le marché, Rapport annuel 2017).
Despite an increase in the number of business angels since 2017 (more than 12 000 in 2018, up from around 11 000 in 2017), the number of financing operations has decreased by 11% (455, compared to 509 in 2017). In 2018, they invested EUR 37 million (compared with EUR 48 million in 2017), which is the lowest level since 2014 and is not enough to meet the funding needs of SMEs3.
Crowdfunding is a method of financing which is increasingly used in France, and which experienced strong expansion in 2018. Funds raised by crowdfunding platforms more than doubled in the 2015-2018 period, from EUR 167 million to EUR 402 million, with a 20% increase in 2018. This includes EUR 294 million for SMEs and EUR 30 million for start-ups. In 2018, funds raised allowed to finance 33 381 projects, +38% compared to 20174. Crowdfunding platforms benefit from a specific regulatory framework since 2014 which enables them to operate without a minimum amount of equity. However, their activity is regulated in order to guarantee transparency and investors protection. Other financial operators can operate through internet platforms without these specific legal status, but they must conform to the classic financial regulatory framework.
Factoring volumes increased by 10.2% in 2018 to EUR 320.4 billion. The number of ongoing operations (+ 12.8%) also increased in 2018 compared to 2017. This trend continues to reflect the collective effort made by factoring companies to target SMEs, with simpler offers without time constraints and the possibility to cover only a part of their trade receivables.
copy the linklink copied!Other indicators
Payment delays, defined as any payment made beyond the contractually agreed term, and measured in terms of late payment days including payments on time (delay = 0), were globally stable between 2008 and 2014 (12 days on average). However, there is a certain heterogeneity in payment delays, due to the size of firms or the sector. The larger the firms, the more important are the payment delays on average. In 2015, the payment delays reached 13.3 days, the highest since the crisis, and then decreased steadily again between 2016 and 2018, reaching 10.8%.
SME bankruptcies peaked during the Great Recession and decreased again in 2010 and 2011. 2012 and 2013 saw an uptick in the bankruptcy rate for SMEs, a trend that has since continued. Since 2015, SME bankruptcies have decreased by 14%. Indeed, in 2015, 62 984 firms went bankrupt compared to 54 004 in 2018.
Non-performing loans (NPLs) reached 4.7% of all business loans during the crisis in 2009. Since then, NPLs have steadily decreased to 3.3% in 2018.
copy the linklink copied!Government policy response
Two main structures: credit mediation and Bpifrance
In order to respond to the financing constraints faced by SMEs, the Government put in place two main structures: credit mediation and Bpifrance.
Credit mediation continues to play a strong role in assisting SMEs with their liquidity problems
Backed by the Banque de France, credit mediation, set up in November 2008, remains a central part of the financing landscape for French SMEs.
Companies encountering difficulties with their bank or their credit insurer can file a request online to start the mediation process. The mediation services in Paris, assisted by departmental mediators from the Banque de France, assess the eligibility of the requests and contribute to finding a solution between the requesting firms and the financial institutions at local level, or if necessary, at a national level.
In 2018, 1 322 mediations were set up, assisting 757 enterprises with a total of 10 565 employees, and unblocking a total of EUR 208 million of credit. However, the number of requests has decreased in comparison with the average number in previous years. This is partly due to the economic outlook, as well as to the overall global easing of access to bank financing.
Since the creation of the scheme in 2008, 55 000 enterprises have had recourse to mediation and 61.5% have been successfully mediated. Overall, the credit mediation scheme has supported 23 000 firms of all sizes, unblocked EUR 6.7 billion in credit, and preserved 414 000 jobs (Médiation du Crédit, 2019).
The Mediation du Credit has signed an agreement with Finance Participative France, the association of crowdfunding platforms in 2015. Firms in mediation will be informed of the possibility to use crowdfunding to address their financing needs, and crowdfunding platforms will inform firms which are not selected on their website that they can turn to the Médiation du Crédit.
The national credit mediator is President de l’Observatoire du financement des entreprises, a light structure set up in 2011 to identify and document the financial situation of small and mid cap firms in France. The Observatoire gathers financial institutions, business representatives, administrations and statisticians to discuss evolutions in SME access to finance, or to conduct studies on specific issues in relation to this subject.
Bpifrance support SMEs in their financing and investment needs
Public support to SMEs is mainly managed through Bpifrance, the public development bank created at the start of 2013 through the fusion of several public operators (OSEO, CDC Entreprises, Fonds stratégique d’investissement). Bpifrance is able to offer businesses a local financing service supported by an extended portfolio of financial instruments and consultation options that can be called upon at any moment of the business development process. It provides guarantees, co-financing, direct loans, and manages, on behalf of public authorities, government support for innovation and services. It also guarantees venture capital funds. On the equity side, Bpifrance manages several funds of funds and direct funds, mostly targeting SMEs' needs. Its scope of action has been recently extended to encompass export credit guarantees. Bpifrance is now the state export guarantee agency.
In 2018, thanks to Bpifrance's intermediation, SMEs had access to around EUR 8.7 billion in guaranteed loans, EUR 7.5 billion of investment credits, EUR 10.3 million in short term credit and EUR 1.2 billion in support for innovation. On the equity side, Bpifrance invested EUR 536 million directly in Mid & Large Cap through its growth capital activity, EUR 196 million directly in small cap through its growth capital activity, EUR 328 million in innovative SMEs through its venture capital branch, and subscribed more than EUR 962 million indirectly in firms through its funds of funds activities.
Specific focus of recent public policies responding to the financing constraints faced by SMEs
Public policy continues to promote better access to financing for small firms and proper uptake of existing private and public financing measures to boost investment. There is also a strong focus on actions to improve the knowledge and preparation of SMEs in their access to finance.
As of last year, setting up the proper conditions to boost investment has been the focus of public action on financing. In order to boost investment; to encourage firms, whether large or small, to undertake new and riskier projects; to address the needs of start-ups, fast-growing companies, and more traditional SMEs challenged by digital and business model changes, financial and economic actors have to overhaul classical funding options. Equity and credit (with lower collateral requirements) have to be stepped up to offer ways of funding intangible investments, export projects, as well as training or innovative upgrading of firms' processes.
Two examples of measures to illustrate this orientation of public action in the recent period are detailed here.
Reduction of payment delays
The Government is involved in reducing business-to-business payment delays. The transparency, anti-corruption and economic modernisation law enacted in December 2016 strengthens the legislative framework to fight against business-to-business payment delays. The maximum fine for firms that do not respect legal payment delays (60 days) has been raised to two million. Moreover, a procedure known as “name and shame" has been introduced. Henceforth, there is a systematic advertising of fines decisions on the website of the Ministry of Economy and Finance. As a result, in 2018, 377 fine procedures were launched, representing nearly EUR 29.1 million (fines notified and not notified) and 98 have been published on the website of the Ministry of Economy and Finance.
Better access to financing for very small firms
Though the situation of very small firms in their access to bank credit continues to improve, as mentioned above, they still encounter specific difficulties due to their size and, their occasional lack of financial education.
The case of very small firms has been the focus a new measure put in place by Bpifrance to address the investment financing needs of these firms. Since 2016, Bpifrance offers online development loans from EUR 10 000 to EUR 50 000 to fund global investment projects with tangible and intangible investments. Banks often do not spontaneously cover such projects because of the difficulty to find collateral. These loans serve firms with 3-50 employees. This measure, implemented in some regions and with the support of these regions, was expanded in 2018.
To support very small enterprises, the Banque de France has nominated a correspondent for VSEs in every department since 2016 in order to provide advice and discuss their financial situation if necessary, and to avoid specific difficulties before these firms encounter them. Around 100 advisors have been designated to this end and focus on firms with less than 10 employees and turnover of less than EUR 2 million. The rationale behind such an initiative, launched in September 2016, is to break the isolation of entrepreneurs and to solve financial problems before they become too problematic for small firms.
The action plan for business growth and transformation law (loi PACTE)
This law, PACTE, enacted on May 22th 2019, aims to empower small and medium enterprises to grow and create jobs. It also aims to enhance SME finance through different measures, including the following:
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The Euro-growth fund (life insurance fund) was modernised in order to reinforce the contribution of life insurance to financing the economy. The modernisation of the Euro-growth fund should strengthen its contribution to SMEs financing and boost the performance of contracts for policyholders.
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The share saving plan for the financing of SMEs and mid-cap companies is now open to securities issued by crowdfunding platforms. This measure should encourage the development of crowdfunding platforms that distribute financial instruments that are newly eligible.
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A legal framework for ICOs (initial coin offerings) was created with the possibility for the regulator, l’Autorité des Marchés Financiers (AMF) to issue a visa to stakeholders respecting protection criteria for savers. Intermediaries such as crypto-active exchange platforms can apply for a visa issued by the AMF.
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Access to stock market for enterprises is facilitated: the prospectus5 exemption threshold is raised and the squeeze-out threshold is lowered.
References
Association française des sociétés financières (ASF) (2018) L'activité des sociétés d'affacturage en 2017
Banque de France (2018) Enquête trimestrielle sur l’accès des entreprises au crédit 2018 T2
https://www.banque-france.fr/statistiques/credit/credit/acces-des-entreprises-au-credit
Bpifrance (2019) Rapport annuel 2018 Bpifrance investissement
Bpifrance (2019) Rapport annuel 2018 Bpifrance financement
https://www.bpifrance.fr/Espace-Investisseurs
France Angels (2018) L’investissement des Business Angels en 2017
France Invest/Grant Thornton (2019) “Activité des acteurs français du capital-investissement en 2018”, https://www.grantthornton.fr/globalassets/1.-member-firms/france/pdf/insight/2019/franceinvest_etudes_2019_activite_2018_vdef.pdfInsee (2018) Les entreprises en France
https://www.insee.fr/fr/statistiques/3639594
KPMG (2019) Baromètre du crowdfunding en France 2018
http://financeparticipative.org/barometres-crowdfunding/barometre-du-crowdfunding-2017/
Médiation du crédit (2019) Rapport d’activité 2018
Observatoire des délais de paiement (2019) Rapport annuel de l’Observatoire des délais de paiement
https://publications.banque-france.fr/sites/default/files/medias/documents/odp2019_book_web.pdf
Observatoire du financement des entreprises par le marché (2018), Rapport annuel 2017.
http://observatoire-financement-entreprises.com/rapport-annuel-2017-1?context=b5adccb
Notes
← 1. Insee, Les entreprises en France, Edition 2018.
← 2. Banque de France, Enquête trimestrielle sur l’accès des entreprises au credit, 2019T1.
← 3. France Angels, L’investissement des Business Angels en 2018, 2019.
← 4. KPMG, Baromètre du crowdfunding en France 2018, 2019
← 5. A prospectus is a general information document for investors which is standardised at European level
Metadata, Legal and Rights
https://doi.org/10.1787/061fe03d-en
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