11. Denmark
In 2021, not counting non-employer enterprises, SMEs accounted for 98.7% of all enterprises and 38.7% of all full-time employees in Denmark.
New lending to SMEs from financial institutions increased from DKK 50 billion to 57 billion between 2021 and 2022, representing a 14% increase. The 2022 level was slightly higher than the average in the period 2014-2022. The share of new SME lending compared to total new lending was 7.35% in 2022, which is below the average of 10.43% in the period 2014-2022.
Interest rates for SMEs as well as for large firms have been steadily declining since 2008 until a few years back. The interest rates for SMEs have been increasing each year since 2019 from 1.85% to 2.72% in 2022, resulting in a widening interest rate spread. The 2022 interest rate spread reached 1.16 percentage-points up from 0.78 percentage-points in 2019 ascribed to a slight increase each year.
Venture and growth capital financing from Danish private equity firms increased in 2021 and 2022 and reached a record high level of EUR 1224 million in 2022. The overall increase results of an increase in growth capital as venture investments experienced a 52% decrease from the high level of 2021 to 2022. The 2022 level of venture and growth capital are significantly higher than any year between 2010 and 2020.
The average payment delays have been increasing over the last 3 years and is currently at the highest level at 14 days in 2022 for the period 2014-2022. The number of bankruptcies among SMEs increased from 1 768 in 2021 to 2 351 in 2022 explained in part by the phasing out of the COVID-19 support schemes.
In 2022, government loan guarantees decreased from DKK 2 260 million in 2021 to 1 542 million, and government guaranteed loans decreased from DKK 2 478 in 2021 million to 1 780 million in 2022.
The 1st of January 2023 the Export and Investment Fund of Denmark (EIFO) was established through a merger of three previous state funds: The Growth Fund, Denmark’s Green Investment Fund and EKF Denmark’s Export Credit Agency. EIFO provides a single point of access for Danish companies requiring government financing and aims to improve growth in a green way.
In 2022, the growth in GDP was 2.7% down from 4.7% in 2021. The growth is expected to decline due to high inflation and interest rates. The remaining growth is caused by continuing development in life science. The inflation in Denmark reached a maximum of 10.3% in October 2022 and decreased steadily since resulting in an inflation of 7.5% in 2022.
In 2021 SMEs (approximated by firms with less than 100 employees) accounted for 98.7% of all enterprises and accounted for 38.7 of all full time employees in Denmark, not counting non-employer enterprises.
Lending to SMEs (approximated by loans amounting to less than EUR 1 million) from financial institutions increased from DKK 50 to 57 billion between 2021 and 2022. The increase is among other a result of government loans maturing causing increased demand for takeover of loans by financial institutions. The share of new SME lending compared to new total lending was 7.35% in 2022, below the average of 10.43% in the period 2014-2022.
New short-term SME loans increased by 52.6% in 2022 while new long-term loans decreased by 33.5%. The share of short-term loans to long-term loans thus increased from 50.2% to 67.25%.
Interest rates for SMEs as well as for large firms have been steadily declining since 2008 until a few years back where that changed. The interest rates for SMEs have been increasing each year since 2019 from 1.85% to 2.72% in 2022, resulting in a widening interest rate spread. The 2022 interest rate spread, currently at 1.16 percentage points, has been increasing since 2019.
According to the European Venture Capital Association database (published by Invest Europe), venture and growth capital financing from Danish private equity firms increased in 2021 and 2022 and reached a record high level of EUR 1224 million in 2022. The overall increase results of an increase in growth capital as venture investments experienced a 52% decrease from the high level of 2021 to 2022. The 2022 level of venture and growth capital is significantly higher than any year between 2010 and 2020.
According to Intrum, B2B (business-to-business) payment delays have been increasing significantly over the last 3 years and are currently at the highest level for the 2014-2022 period, at 14 days in 2022. The number of bankruptcies among SMEs increased from 1 768 in 2021 to 2 351 in 2022. The higher number of bankruptcies is considered to reflect the extensive COVID-19 support measures. These measures, started during 2020, lowered the amount of bankruptcies during their lifetime but are now being phased out.
The Danish Export and Investment Fund (EIFO) is a new government backed investment fund established in 2023. EIFO was created through a merger of the three state-owned funds: Vækstfonden, EKF Danmarks Eksportkredit and Danmarks Grønne Investeringsfond. As of January 1, 2023, they became subsidiaries under EIFO. On April 1, 2023, the former funds were dissolved and joined in one entity. EIFO offers guarantees and loans to established SMEs and entrepreneurs, invests equity in young companies with growth potential and engages in fund of funds activities by investing in venture and small to mid-cap funds.
EIFO is also a government backed export credit agency who offers guarantees, insurance and loans to Danish exporting companies and their customers in order to make it more attractive for them to purchase products from Danish companies.
Government guaranteed loans
Growth loans (Vækstlån) are subordinated loans issued by EIFO directly to SMEs seeking capital for business development or a change of ownership. The financial assessment is based on the company’s current and past performance, its potential for growth and profitability, as well as its management capabilities. All loans are granted as part of a funding package that is provided by other financial partners, such as banks and mortgage institutions. Only loans above DKK 1 million are issued. The interest rate is set at least 30% above the comparable market rate to ensure minimal market distortions, avoid a crowding out of the private sector, and hedge against collections/defaults in which banks and other creditors have preferred claims on pledged collateral.
In 2019, the Danish government introduced a match financing scheme (Matchfinansieringsordningen) which allows EIFO to issue loans (Startlån), convertible loans (Early Engagement) and loans designed to match investments of pre-approved angel investors (Business Angel Matching Lån). The loans are specifically targeting young enterprises who may in time be eligible for venture capital, in other words, highly scalable and potentially global enterprises with an innovative product or business model. The maximum loan amount for all three types of loans is DKK 7.5 million and the maximum maturity is 10 years.
The export loan facility in EIFO was established to support the international competitiveness of Danish enterprises and benefit Danish exports affected by the financial and economic crisis. The credit scheme supports Danish exports with long credit periods, i.e. more than two years. The total credit limit for the export loan scheme is DKK 25 billion.
The amount of government guaranteed loans decreased from DKK 2 478 million in 2021 to DKK 1 780 million in 2022. However, this development must be seen in the light of the COVID-19 loan and guarantee schemes outlined below.
Government loan guarantees
Small guarantees (Vækstkautioner) are provided to SMEs and cover up to 75% of a bank’s loss in the event of a default. Capped at DKK 2 million, growth loan guarantees can be granted to finance business development, changes in ownership, capital investments, or the development of new and improved products.
Compared to the small guarantees, growth guarantees (Vækstgarantier) target the more established SMEs that need to make larger investments or expand their businesses. A growth guarantee covers the risk associated with insufficient collateral as a basis for achieving a pre-payment warranty or lease, for example. A company can obtain a growth guarantee as part of a growth plan that has sound economic perspectives. Only guarantees above DKK 1 million are issued, either alone or in combination with a growth loan. In this combination the granting of a growth loan conditions on the market raising at least 30% of the capital requirements. Growth guarantees cover 100% of loan risk (typically for 50% of the project costs) and companies must provide collateral to obtain them. Unlike for small guarantees, EIFO has no political mandate to generate aggregate losses under the growth guarantee scheme.
The working capital guarantee in EKF was first established as a temporary guarantee scheme to provide operating and development credit up to DKK 2 billion, for Danish export firms. EIFO can guarantee up to 80% of operating and development credit extended by banks to Danish export firms and their sub-suppliers. EKF assumes all rights and obligations associated with the scheme.
Government loan guarantees issued to SMEs decreased from DKK 2260 million in 2021 to DKK 1542 million in 2022. However, this development is a result of, among others, the phase out of the COVID-19 loan and guarantee schemes outlined below.
COVID-19 loan and guarantee schemes
Due to the effects of COVID-19, the Danish government implemented two new loan schemes under which EIFO can match the investments of professional investors with a loan of three times the amount of the investment (COVID-19-mathfinansieringsordninger). The main objective of the schemes has been to keep steady private investment in early stage and venture companies during the crisis.
Additionally, two guarantee schemes targeting SMEs were implemented in EIFO. The guarantees can cover 90% of the risk on new loans from commercial banks to SMEs who have experienced a decline in turnover of more than 30% due to COVID-19.
Source: See Table 11.2.
References
Danmarks Nationalbank, DNRNUM (2023): ”DNRNUM: New domestic loans excl. revolving loans, etc. from MFI sector excl. Danmarks Nationalbank.” https://nationalbanken.statistikbank.dk/statbank5a/default.asp?w=1843
Danmarks Nationalbank, DNRUUM (2023): ”DNRUUM: Outstanding domestic loans from the MFI sector excl. Danmarks Nationalbank.” https://nationalbanken.statistikbank.dk/statbank5a/default.asp?w=1843
Danmarks Nationalbank, DNUDERHV (2023): “DNUDERHV: Credit condition survey, corporate lending (net figures).”
https://nationalbanken.statistikbank.dk/statbank5a/default.asp?w=1843
Danmarks Statistik, KONK7 (2023): “KONK7: Bankruptcies by employed.” http://www.statbank.dk/KONK7
Danmarks Statistik, GF3 (2023): ”GF3: General enterprise statistics.” https://www.statistikbanken.dk/statbank5a/SelectVarVal/Define.asp?Maintable=GF3&PLanguage=1
Intrum (2023): “European Payment Report 2022.”
https://www.intrum.com/media/2772/epr-2018.pdf
Invest Europe Research (2023): “European Private Equity Activity Data 2022.” https://www.investeurope.eu/research/activity-data/
Note
← 1. Danmarks Statistik, GF3