29. Luxembourg

Key facts on SME financing

SMEs account for 99.5% of all non-financial firms in Luxembourg. In 2016, SMEs employed approximately 67% of the labour force and generated 65% of economy’s total value added.

New business lending to all firms increased in 2018 compared to 2017 but remained well below the peak of 2008. New loans to SMEs (defined as loans below EUR 1 million) continued to increase in 2018 but at lower pace than loans to all enterprises. Therefore, the share of new SMEs lending decreased to 10.89%, which is lower than the 12.8% of 2017.

In 2018, the interest rate for SMEs amounted to 1.73%, down from 5.72% in 2008. The interest rates for SMEs remained systematically higher than the interest rate for large firms over the period 2007-18, with a gap of 46 basis points in 2018. In relative terms, interests payed by SMEs are 36.8% higher than interest payed by large firms.

Alternative forms of financing such as venture capital and factoring may hold high potential for SMEs seeking finance. In 2018, nearly EUR 112 million of venture capital were invested in Luxembourgish firms.

Bankruptcies in Luxembourg increased from 904 in 2017 to 1191 in 2018, marking the peak of the 2007- 2018 period.

The simplified limited liability company (SARL-S), also dubbed “1-1-1 companies” (one person, one euro, in one day), is gaining popularity. In the period January-July 2018, 10.3%, of all registrations had the legal form of SARL-S compared to the 7.7% in 2018 and 6% in 2017. The SARL-S is intended to facilitate the development of new business activities and it can be created more quickly than a regular SARL-S.

Table 29.1.Scoreboard for Luxembourg
Indicator	Unit	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018
Debt
New business lending, total	EUR million	113 817	181 792	166 287	111 898	111 568	105 854	100 444	92 349	83 076	87809	80 264	95 853
New business lending, SMEs	EUR million	12 800	14 555	14 754	15 441	17 979	15 593	13 713	10 765	10 142	9 395	9 698	10 440
Share of new SME lending	% of total new lending	11.25	8.01	8.87	13.80	16.11	14.73	13.65	11.66	12.21	10.70	12.08	10.89
Non-performing loans, total	% of all business loans	0.12	0.18	0.44	0.48	0.64	0.59	0.52	0.41	0.40	0.27	0.38	0.40
Interest rate, SMEs	%	5.51	5.72	2.81	2.71	2.68	2.22	2.05	2.08	1.88	1.75	1.76	1.73
Interest rate, large firms	%	4.96	4.97	2.59	2.30	2.62	1.86	1.64	1.47	1.42	1.20	1.21	1.26
Interest rate spread	% points	0.54	0.75	0.21	0.41	0.06	0.35	0.41	0.62	0.46	0.55	0.55	0.47
Percentage of SME loan applications	SME loan applications/ total number of SMEs	..	..	..	..	18.20	..	25.80	16.40	23.00	26.15	18.93	32.28
Non-bank finance
Venture and growth capital	EUR thousand	103 343	298 650	49 021	132 917	281 484	86 212	31 090	128 472	144 368	196 346	59 145	112 046
Venture and growth capital (growth rate)	%, Year-on-year growth rate	..	188.99	-83.59	171.14	111.77	-69.37	-55.23	230.97	13.00	34.10	-69.85	89.44
Factoring and invoice discounting	EUR million	..	..	349	321	180	299	407	339	..	..	..	..
Other indicators
Bankruptcies, SMEs	Number	659	574	693	918	978	1 050	1 049	850	873	961	904	1 191
Bankruptcies, SMEs (growth rate)	%, Year-on-year growth rate	..	-12.90	20.73	32.47	6.54	7.36	-0.10	-18.97	2.71	10.08	-5.93	31.75
Source: See Table 29.4.

SMEs in the national economy

Table 29.2 shows that SMEs accounted for 99.5% of all non-financial business economy firms in Luxembourg in 2016 (the latest year for which structural business statistics are available). SMEs employed 67% of the labour force and generated 65% of the economy’s total value added.

Table 29.2 also shows that labour productivity, defined as the ratio of gross added value per person employed, increased with firms’ size from EUR 61 840 in small firms (10-19 employees) to EUR 93 376 in large firms (more than 250 employees). Micro-enterprises (0-9 employees) were a noticeable exception to the positive relationship size and productivity, as they reported extremely high labour productivity EUR 98 347.

Some caution is needed when reading Table 29.2, because those data refer to the non-financial business economy. The financial sector, however, is particular relevant in Luxembourg. The financial sector accounted for 27.2 % of all economy gross value added (STATEC, 2017) and employed 46 519 persons at the end of 2016.

Table 29.2. Firms in Luxembourg in 2016
By firm size
Firm size (employees)	Number of firms	%	Number of persons employed	%	Value added at factor cost per class size (in EUR million)	%	Gross Added Value per person employed (in EUR)
All firms	32 278	100.0	265 037	100.0	23 197.2	100.0	87 524
SME (0-249)	32 125	99.5	178 494	67.3	15 116.3	65.2	84 688
Micro (0-9)	28 054	86.9	46 772	17.6	4 599.9	19.8	98 347
Small (10-19)	2 164	6.7	28 973	10.9	1 791.7	7.7	61 840
Small (20-49)	1 265	3.9	38 303	14.5	3 131.6	13.5	81 759
Medium (50-249)	642	2.0	64 446	24.3	5 593.1	24.1	86 787
Large (250 +)	153	0.5	86 543	32.7	8 081.0	34.8	93 376
Note: Figures refer to total non-financial business economy.
Source: Structural Business Statistics, Eurostat-.sbs_sc_sca_r2.

SME lending

SME loans are defined as new business loans of up to EUR 1 million. The Banque Centrale du Luxembourg provided figures for the period 2007-18.

New loans to all enterprises increased in 2018 compared to 2017, but they remained approximately at 50% of their highest level recorded in 2008. New loans to SMEs continued to increase in 2018, but at a lower pace than loans to all enterprises. Therefore, the share of new SMEs lending decreased to 10.89%, which is lower than the 12.8% of 2017 and well below the peak of 16.1% in 2011.

Credit conditions

The interest rate paid by SMEs and the SMEs-large firms interest rate spread are important indicators of the credit conditions faced by SMEs. The yearly interest rate charged to SMEs is computed as the average monthly interest weighted by the amount granted in the same month. The SMEs-large firms spread measures the difference in percentage points between the interest rate charged to SMEs and the interested rate for large enterprises. The “relative spread” is defined as the ratio of the spread to the interest rate paid by SMEs.

Over the last decade, the average interest rate for SMEs steadily declined, except for a small increase in 2014 (see Figure 29.1). In 2018, SME loans had a 1.73% interest rate, stable compared to the value of the previous year (1.76%), but down from the 5.72% value recorded in 2008.

The interest rates for SMEs, however, remained systematically higher than the rate granted to large firms. The spread SME-large firms showed considerable fluctuations from a low of 0.06 percentage points in 2011 to a high of 0.75 percentage points in 2008. Lastly, in 2018, the SME-large firms spread decreased to 0.46 compared to 0.55 percentage points in 2017.

The relative spread (continuous line in Figure 29.1) generally increased since 2011. However, in 2018 it decreased from 45.5% in 2017 to 36.8%. To interpret the relative spread, in 2018 SMEs obtaining loans from banks were paying for interests 36.8% more than large firms. One possible explanation for why this spread was large is that banks faced considerable fixed costs to screen and monitor loans.

Figure 29.1. Trends in interest rate in Luxembourg

Source: Banque Centrale du Luxembourg.

 StatLink https://doi.org/10.1787/888934117440

The Survey on the Access to Finance of Enterprises (SAFE) of the European Commission and European Central Bank shows that, in Luxembourg, 32% of SMEs applied for a loan in 2018, compared to 18% in 2017, suggesting a considerable increase in SMEs demand for bank financing. On average, nearly 23% of SMEs applied for bank financing over the reference period.

Alternative sources of SME financing

Venture capital

In Luxembourg, venture capital has shown significant variations over the years, especially among growth stage firms (See Table 29.3). This volatility was possibly caused by the limited number of registered transactions for this type of financing, making it more sensitive to outlier values. Total investment in venture capital amounted to EUR 112 million in 2018 compared to EUR 59.1 million in 2017.

Table 29.3. Venture and growth capital investments in Luxembourg
In EUR thousands
	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018
Seed	200	0	0	1000	175	750	0	300	101	145	342	9715
Start-up	5225	3050	1141	1500	5334	4153	6742	3190	5458	3653	13078	1506
Later stage venture	10286	30363	4589	1010	25	6845	223	800	338	150	3200	4638
Growth	87129	270230	46607	124628	275867	74464	24125	124182	138471	192398	42525	96186
Total	102840	303643	52337	128138	281401	86212	31090	128472	144368	196346	59145	112046
Note: Data for 2013-2017 were slightly revised in 2018.
Source: Invest Europe.

Factoring and invoicing

The most recent data show that, in 2014, factoring and invoicing transactions in Luxembourg amounted to EUR 339 million. This represents a 16.7% reduction from the previous year, when it stood at EUR 407 million.

Other indicators

Data on non-performing loans is provided by the Commission de Surveillance du Secteur Financier Commission de Surveillance du Secteur Financier (CSSF). In 2017, 0.40% of total business loans in Luxembourg were declared non-performing, a slight increase from 0.38% in 2017. However, it remains much higher than the lowest point in the reference period, 0.12% in 2007.

Compared to 904 in 2017, bankruptcies among all firms in Luxembourg stood at 1191 in 2018, the peak for the reference period.

Government policy response

The Luxembourg Future Fund (LFF) was set up in 2015 with funding from the European Investment Fund (EUR 30 million) and the Société Nationale de Crédit et d’Investissement (EUR 120 million). This EUR 150 million fund invests in innovative SMEs that bear potential to bring significant and sustainable development and diversification to Luxembourg’s economy. By the 31^st of March 2018, LFF had co-invested in cyber‐security, FinTech and space sector.

The Digital Tech Fund was set up in 2016 by private and public investors with an endowment of about EUR 20 million. This seed fund supports ICT start-ups active in industries such as cyber-security, FinTech, big data, digital health, telecommunications, satellite services or the internet of things.

Two mutual guarantee schemes aimed specifically at providing support for SMEs operate in Luxembourg - the MPME (Mutualité des P.M.E.) and the MC (Mutualité de Cautionnement) of the Chambre de Commerce.

The MPME was founded by the Chambre des Métiers and the Fédération des Artisans to alleviate financial constraints among their members. MPME offers its financial standing as collateral to banks and other financial institutions to facilitate lending to SMEs. In 2018, it issued almost EUR 242 million of credits and guarantees compared to EUR 237 million in 2017.

MC is a mutual institution for members of the Chambre de Commerce, which was set up to facilitate SMES’ access to bank financing. This is achieved by providing guarantees to approved credit institutions when the guarantees provided by the contractor are insufficient. In 2018, MC signed a partnership agreement with the European Investment Fund (EIF) on the COSME initiative (Competitiveness of Small and Medium-sized Enterprises). The annual report of the Chambre de Commerce stated that MC advised more than 250 persons on the creation, takeover and financing of companies in 2018 (one-stop-shop to finance). Out of 48 requests for credit guarantees received, the evaluation committee approved 32 cases for a total amount of EUR 2.1 million.

The Office du Ducroire is a public institution that offers services to exporters, including SMEs. It insures the risks linked to international business and partially finances promotion expenses, exhibition and export-training expenses. In 2017, Office du Ducroire insured new transactions for EUR 555.7 million in 2017 compared to EUR 697.9 million in 2016.

A simplified form of société à responsabilité limitée (SARL-S) entered into force in January 2017. The SARL-S also dubbed “1-1-1 companies” (one person, one euro, in one day), can be created more quickly and with fewer start-up funds than a regular SARL. The SARL-S is restricted to physical persons, and it was intended to facilitate the start-up and development of new business activities. SARL-S is gaining popularity. Indeed, in the period January-July 2019, among 66346 registrations to the trade and companies register (registre de commerce et des sociétés - RCS), 652 firms had the legal form of SARL-S, or 10.3%, of all registrations. The proportion of SARL-S was 7.7% in 2018 and 6% in 2017.

Figure 29.2. Trends in SME and entrepreneurship finance in Luxembourg

Source: See Table 29.4.

 StatLink https://doi.org/10.1787/888934117459

Table 29.4. Definitions and sources of indicators for Luxembourg’s scoreboard
Indicator	Definition	Source
Debt
New business lending, total	New business, New loans, sum at the end of December,	Banque Centrale du Luxembourg: Capital markets and interest rates, Table 3.3.1.
New business lending, SMEs	New business, New loans less than 1 Eur million, sum at the end of December,	Banque Centrale du Luxembourg: Capital markets and interest rates, Table 3.3.1.
Non-performing loans, total	Loans which are “in default”, i.e. 90 days past due or classified as unlikely to be repaid	CSSF: “COREP Solvency” reporting, tables 09.01 and 09.02
Interest rate, SMEs	Luxembourg bank interest rates on euro-denominated deposits and loans by euro area residents - new business, New loans less than 1 EUR million, Floating rate and up to 1 year initial rate fixation, and end December, annual mean average interest rate weighted by amount.	Banque Centrale du Luxembourg: Capital markets and interest rates, Table 3.3.1.
Interest rate, large firms	Luxembourg bank interest rates on euro-denominated deposits and loans by euro area residents - new business, all new loans , Floating rate and up to 1 year initial rate fixation, and end December, annual mean average interest rate weighted by amount.	Banque Centrale du Luxembourg: Capital markets and interest rates, Table 3.3.1.
Percentage of SME loan applications	Any application for bank loans in the last 6 months (excluding overdraft and credit lines). Figures based on question q7aa of SAFE questionnaire.	SAFE question "q7aa”; European commission European Central bank
Non-bank finance
Venture and growth capital	Investment in venture and growth capital (market statistics, by country of portfolio company). Includes seed, start-up, later stage venture and growth investment (replacement capital, turnaround and buyout investment were excluded). INVEST Europa /EDC revised historical data in the period 2007- 2019.	Invest Europe/European Data Cooperative
Factoring and invoicing	Factoring turnover, both domestic and international, for all firms	Factors chain international
Other indicators
Bankruptcies, total	Bankruptcies handed down by the court of commerce on an annual basis	STATEC -National Institute of statistics and economic studies of the Grand Duchy of Luxembourg - -Business demography

References

BCL (Banque Centrale du Luxembourg)http://www.bcl.lu/fr/statistiques/series_statistiques_luxembourg/index.html

Chambre de Commerce (2018) RAPPORT ANNUEL 2018.

CSSF (Commission de Surveillance du Secteur Financier Commission de Surveillance du Secteur Financier). https://www.cssf.lu/

Digital Tech Fund http://www.snci.lu/files/68321.pdf

Eurostat http://ec.europa.eu/eurostat/web/structural-business-statistics/data/database

EIF (European Investment Fund) http://www.eif.org/

Factor Chain International https://fci.nl/en/about-factoring/statistics

Invest Europa https://www.investeurope.eu

Luxembourg Future Fund https://www.snci.lu/files/84448.pdf

MC (Mutualité de Cautionnement) http://www.cautionnement.lu/

MPME (Mutualité des P.M.E.) http://www.mpme.lu/fr

Office du Ducroire http://www.ducroire.lu/

SAFE (Survey on the Access to Finance of Enterprises) http://ec.europa.eu/growth/access-to-finance/data-surveys_en

SNCI (Société Nationale de Crédit et d’Investissement) http://www.snci.lu/

STATEC National Institute of Statistics and Economic Studies of the Grand Duchy of Luxembourg “Faillites prononcées par les tribunaux de commerce” http://www.statistiques.public.lu

STATEC (2017) Luxembourg in Figures 2017. http://www.statistiques.public.lu

RCS (Registre de Commerce et des Sociétés) www.lbr.lu