28. Luxembourg
According to the latest available data, SMEs accounted for 99.5% of all non-financial firms in Luxembourg in 2018. SMEs employed approximately 66% of the labour force and generated 63% of the economy’s total value added.
New loans to all enterprises decreased in 2020 compared to 2019, marking the lowest level since data are recorded. New loans to SMEs (defined as loans below EUR 1 million) decreased in 2020 too, but at a slower pace than loans to all enterprises. Therefore, the share of new SME lending increased to 14%, which is higher than the 12.1% of 2019 but below the peak of 16.1% in 2011.
Over the period 2007-2020, the average interest rates for SMEs remained systematically higher than the average interest rate for large firms. In 2020, the interest rate for SMEs was 1.57%, compared to 1.10% for large firms. In absolute terms, this means an interest rate spread of 0.47 percentage points. In relative terms, interests payed by SMEs are 43.0% higher than interest payed by large firms in 2020.
Alternative forms of financing such as venture capital may hold high potential for SMEs seeking finance. In 2020, nearly EUR 220 million of venture capital were invested in Luxembourgish firms. The largest part of all venture capital funding is invested in firms active in the Information and Communication Technology industry (EUR 88.3 million).
In 2021, Orbital Ventures, a public-private partnership was set up to make strides in the space economy with an endowment of EUR 70 million. The Fund invests in early-stage companies and focuses on space technologies including communications, cryptography, rockets and satellites.
The numbers of bankruptcies among all firms in Luxembourg stood at 1 198 in 2020, decreasing from 1 262 in 2019, the peak for the reference period.
Table 28.2 shows that SMEs accounted for 99.5% of all non-financial business economy firms in Luxembourg in 2018 (the latest year for which structural business statistics are available). SMEs employed 66% of the labour force and generated 62.9% of the economy’s total value added.
Some caution is needed when reading Table 28.2, because the data refer to the non-financial business economy. The financial sector, however, is particularly relevant in Luxembourg. This sector accounted for 26.2 % of all economy gross value added (STATEC, 2018) and employed 49 269 persons at the end of 2018.
SME loans are defined as new business loans of up to EUR 1 million. The Banque Centrale du Luxembourg provided figures for the period 2007-20.
New loans to all enterprises decreased in 2020 compared to 2019, marking the lowest level since data are recorded. New loans to SMEs also decreased in 2020, but at a slower pace than loans to all enterprises. Therefore, the share of new SME lending increased to 14.0%, which is higher than the 12.1% of 2019 but below the peak of 16.1% in 2011.
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 time, the average interest rate for SMEs steadily declined, except for a small increase in 2014 (see Figure 29.1). In 2020, SME loans had an average interest rate of 1.57%, relatively stable compared to the value of the previous year (1.65%), 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 2020, the SME-large firms spread decreased to 0.47 compared to 0.53 percentage points in 2019
The relative spread (continuous line in Figure 28.1) generally increased since 2011. However, it decreased from 48% in 2019 to 43% in 2020. To interpret the relative spread, in 2020 SMEs obtaining loans from banks were paying for interests 43% 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.
Source: Banque Centrale du Luxembourg: Capital markets and interest rates, Table 3.3.1.
The Survey on the Access to Finance of Enterprises (SAFE) of the European Commission and European Central Bank shows that, in Luxembourg, 22.9% of SMEs applied for a loan in 2020, compared to 27.0% in 2019, suggesting a decrease in SMEs demand for bank financing. Over the reference period, the percentage of SMEs that applied for a loan ranged from 16.4% in 2014 to 32.3% in 2018.
Venture Capital
In Luxembourg, venture capital (VC) investments have shown significant variations over the years, both in terms of investment stage (See Table 28.3) and industry (See Table 28.4). 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 VC amounted to EUR 199.4 million in 2020 compared to EUR 117.9 million in 2019. In 2020, most of the VC investments were in firms at the growth stage (EUR 154.7 million) and in firms that were active in the Information and Communication Technology industry (EUR 88.3 million).
Data on non-performing loans is provided by the Commission de Surveillance du Secteur Financier (CSSF). In 2020, 0.57% of total business loans in Luxembourg were declared non-performing, a slight increase from 0.42% in 2019. In the reference period, the value of non-performing loans ranges from 0.12% in 2007 to 0.64% in 2011.
The numbers of bankruptcies among all firms in Luxembourg stood at 1,198 in 2020, decreasing from 1,262 in 2019, the peak for the reference period.
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.
In 2021, the Orbital Ventures, a public-private partnership was set up to advance space economy. With an initial endowment of EUR 70 million, the fund invests in early stage companies and focuses on space technologies including downstream (communications, cryptography, data storage and processing, geolocation, earth observation) and upstream (space hardware, materials, electronics, robotics, rockets, satellites) areas.
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 the potential to bring significant and sustainable development and diversification to Luxembourg’s economy. By the 31st of March 2020, LFF had co-invested in cyber‐security, FinTech and space sector.
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 2020, it issued almost EUR 249 million of credits and guarantees compared to EUR 236 million in 2019.
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. The guarantees can cover up to 50% of the credit for a maximum amount of EUR 250 000 per request.
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 last available data, Office du Ducroire insured new transactions for EUR 505.5 million in 2019 compared to EUR 411.0 million in 2018.
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. In the period January-May 2021, among 5 816 registrations to the trade and companies register (registre de commerce et des sociétés - RCS), 554 firms had the legal form of SARL-S, or 9.5%, of all registrations.
Source: See Table 28.4.
References
BCL (Banque Centrale du Luxembourg)http://www.bcl.lu/fr/statistiques/series_statistiques_luxembourg/index.html
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
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 (2018) Luxembourg in Figures 2018. http://www.statistiques.public.lu
RCS (Registre de Commerce et des Sociétés) www.lbr.lu