11. Denmark
In 2019, not counting non-employer enterprises, SMEs accounted for 98.7% of all enterprises and 39.1% of all full-time employees in Denmark.
Lending to SMEs from financial institutions declined from DKK 68 billion to 56 billion between 2019 and 2020. The 2020 level was, however, higher than in the years 2016-2018. The share of new SME lending compared to total new lending was 11.03% in 2020, slightly below the average of 11.68% in the period 2010-2020.
Survey data illustrates that credit conditions concerning corporate lending from banks to SMEs in Denmark almost consistently tightened between 2018 and 2021, after having relaxed between 2014 and 2018. In addition, the demand for new loans by new SME customers increased substantially between the first quarter of 2020 and the first quarter of 2021, while the demand by existing SME customers was stable.
Interest rates for SMEs as well as for large firms have steadily declined since 2008, but the interest rates for SMEs increased slightly in 2020, from 1.85% to 1.93%, resulting in a widening interest rate spread. However, with the exception of 2019, the 2020 interest rate spread of 0.90% is the lowest since 2007.
Venture and growth capital financing from Danish private equity firms decreased in 2019 and 2020, after reaching a record high of EUR 699 million in 2018. However, particularly the level of venture investments remained high in historical comparison despite the effects of COVID-19 in 2020.
Due to the effects of the COVID-19 pandemic, the average payment delays increased dramatically to 20 days in 2020, after having been at an all-time low of 2 days in 2017 and 3 days in 2018 and 2019. However, as a result of the extensive government support measures, the number of bankruptcies among SMEs decreased from 2 153 in 2019 to 1 841 in 2020.
The COVID-19 support measures have, among other things, included loan and guarantee schemes targeting SMEs. The loan schemes have allowed Vækstfonden (The Danish Growth Fund) to match the investments of professional investors with a loan of three times the amount of the investment. The guarantee schemes have allowed Vækstfonden and EKF (Denmark's Export Credit Agency) to cover 90% of the risk on new loans from commercial banks to SMEs.
In 2020, government loan guarantees increased from DKK 512 million to 1 948 million, and government guaranteed loans increased from DKK 1 246 million to 2 934 million.
In 2019, SMEs (approximated by firms with less than 100 employees) accounted for 98.7% of all enterprises and accounted for 39.1% 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 declined from DKK 68 to 56 billion between 2019 and 2020, although the 2020 level was still higher than in the years 2016-2018. The share of new SME lending compared to new total lending was 11.03% in 2020, slightly below the average of 11.68% in the period 2010-2020.
New short-term SME loans increased by 6.29% in 2020 while new long-term loans decreased by 30.96%. Although the share of short-term loans to long-term loans thus increased from 35.66% to 46.04%, it is still below the average of 54.14% in the period 2010-2020.
Interest rates for SMEs as well as for large firms have steadily declined since 2008, but the interest rates for SMEs increased slightly in 2020 from 1.85% to 1.93%, resulting in a widening interest rate spread. However, with the exception of 2019, the 2020 interest rate spread of 0.90% is the lowest since 2007.
The quarterly credit condition survey of Danmarks Nationalbank (the Central Bank of Denmark) concerning corporate lending to SMEs (from banks) shows that credit standards have almost consistently tightened between the fourth quarter of 2018 and the first quarter of 2021 after having relaxed from the first quarter of 2014 until the third quarter of 2018. The demand for new loans among new SME customers has increased substantially between the first quarter of 2020 and the first quarter of 2021, while the demand among existing SME customers has been stable.2
According to the European Venture Capital Association database (published by Invest Europe), venture and growth capital financing from Danish private equity firms decreased in 2019 and 2020 after reaching a record high level of EUR 699 million in 2018. However, the 2019 and 2020 levels of venture investments are higher than any year between 2010 and 2017.
Vækstfonden (The Danish Growth Fund) has reached a similar conclusion regarding venture investments in Danish companies (market statistics). Their analysis shows that the Danish venture market recovered quickly after a sharp decline in the first quarter of 20203 .
According to Intrum, B2B (business-to-business) payment delays increased dramatically to 20 days in 2020 after having been at an all-time low of 2 days in 2017 and 3 days in 2018 and 2019. The number of bankruptcies among SMEs decreased from 2 153 in 2019 to 1 841 in 2020. The low number of bankruptcies reflect the extensive COVID-19 support measures during 2020.
Vækstfonden (The Danish Growth Fund) is a government backed investment fund established in 1992. Vækstfonden 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.
EKF (Denmark's Export Credit Agency) is a government backed export credit agency established in 1922. EKF 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 Vækstfonden 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 Vækstfonden 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 which 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 is DKK 7.5 million and the maximum maturity is 10 years.
The export loan facility in EKF 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. On 1 January 2016, the export loan scheme was merged with EKF, with EKF assuming all rights and obligations associated with the scheme.
The amount of government guaranteed loans decreased from DKK 1 246 million in 2019 to DKK 1 153 million in 2020. 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. 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, Vækstfonden has no political mandate to generate aggregate losses under on 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. EKF 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 512 million in 2019 to DKK 456 million in 2020. However, this development must be seen in the light 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 has implemented two new loan schemes under which Vækstfonden 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 up private investment in early stage and venture companies during the crisis.
Additionally, two guarantee schemes targeting SMEs have been implemented in Vækstfonden and EKF. The guarantees can cover 90% of the risk on new loans from commercial banks to SMEs which have experienced a decline in turnover of more than 30% due to COVID-19.
In 2020, a total loan amount of DKK 1 781 million was issued to SMEs by Vækstfonden, while Vækstfonden and EKF issued guarantees to SMEs for a total of DKK 1 492 million.
Source: See Table 11.4
References
Danmarks Nationalbank, DNRNUM (2021): ”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 (2021): ”DNRUUM: Outstanding domestic loans from the MFI sector excl. Danmarks Nationalbank.” https://nationalbanken.statistikbank.dk/statbank5a/default.asp?w=1843
Danmarks Nationalbank, DNUDERHV (2021): “DNUDERHV: Credit condition survey, corporate lending (net figures).”
https://nationalbanken.statistikbank.dk/statbank5a/default.asp?w=1843
Danmarks Statistik, KONK7 (2021): “KONK7: Bankruptcies by employed.” http://www.statbank.dk/KONK7
Danmarks Statistik, GF3 (2021): ”GF3: General enterprise statistics.” https://www.statistikbanken.dk/statbank5a/SelectVarVal/Define.asp?Maintable=GF3&PLanguage=1
Intrum (2021): “European Payment Report 2020.”
https://www.intrum.com/media/2772/epr-2018.pdf
Invest Europe Research (2021): “European Private Equity Activity Data 2020.” https://www.investeurope.eu/research/activity-data/
Vækstfonden (2021): “Årsrapport 2020: Hoved- og nøgletal.”
https://vf.dk//media/2645/vf-aar2020.pdf