Download small and medium-sized enterprises` access to finance

EUROPEAN SEMESTER THEMATIC FICHE
SMALL AND MEDIUM-SIZED ENTERPRISES'
ACCESS TO FINANCE
Thematic fiches are supporting background documents prepared by the services of the
Commission in the context of the European Semester of economic policy coordination. They
do not necessarily represent the official position of the Institution.
1. Introduction
Access to finance is key to business development. Investment and innovation are not
possible without adequate financing. A difficulty in getting finance is one of the main
obstructions to the growth of many businesses, particularly small and medium sized
enterprises (SMEs).
Financial flows to SMEs are increasing but remain subdued. Access to finance is still
perceived as an important problem by several SMEs1. Comparing different types of
enterprises, micro-enterprises and more innovative businesses in particular consider their
financing as the most pressing problem2. Aside from this, important differences in financing
conditions for SMEs between Member States continue to exist.
Member States differ significantly with regard to their financial intermediation models. This
diversity is reflected in the relative importance of various funding sources used by
companies as well as the level of development of various types of financial institutions, e.g.
banks, investment funds, insurance and pension funds; and segments of financial markets
such as stock exchange, bond market, securitisation (see annex).
1
2
In the latest Survey on the access to finance of enterprises (SAFE) in euro area countries (June 2015),
access to finance was considered the most important problem by 34% of SMEs in Greece, 15% in Ireland
and 15% in the Netherlands, in contrast with only 7% of SMEs in Germany and Austria. In the latest SAFE
survey covering all Member States (November 2014), access to finance was cited as the most pressing
problem in Cyprus, Greece and Slovenia; and as the least pressing in Sweden, the Czech Republic and
Denmark. Source: Survey on the access to finance of enterprises (SAFE), European Commission, European
Central Bank.
Source: Survey on the access to finance of enterprises (SAFE) 2014, European Commission, European
Central Bank.
1
2. Identification of challenges
2.1 Funding sources for companies
Bank loans constitute the main source of external funding for corporations in the majority of
Member States (Chart 1). Cypriot and Greek companies are most reliant on bank loans,
which account for more than half their liabilities. In both countries, securities markets play a
minor role in corporate funding. In many Member States, the share of bank loans ranges
between 30% and 50% of the balance sheet. Finally, three groups of countries with a
relatively low share of bank financing can be distinguished. The first includes large and
developed capital markets: the United Kingdom, France and Germany. A large market
creates the opportunity for corporate expansion and, the bigger a firm, the greater role can
be played by the stock market in the companies’ financing as opposed to smaller companies
which need to rely more on bank loans. Listed shares are also an important source of
funding for corporations in the Nordic Member States: Finland, Sweden and Denmark,
exceeding 20% of the balance sheet. The third group of countries with less dependence on
bank credit includes Slovakia, Lithuania, Estonia and Czech Republic and Poland. In these
markets in Central and Eastern Europe, companies rely to a bigger extent on own resources
(e.g. retained profits), being part of their equity.
Chart 1: Loans to non-financial corporations in the euro area (EUR billion, quarterly
data)
Source: Eurostat
Debt securities play a relatively minor role in the funding of European corporations. France
stands out with a 10% share of bonds on the corporate balance sheet, followed by the
United Kingdom, Portugal, Austria and Finland. In some countries, corporate bonds are
almost non-existent, such as Greece, Romania, Lithuania and Cyprus. This suggests that
some obstacles may be hindering the development of these markets. In a few countries the
role of trade credit is particularly important. It accounts for almost 20 % of corporate sector
liabilities in Malta and Slovakia and is also high in Lithuania, Latvia, the Czech Republic and
Slovenia.
2
2.2 Bank lending
Bank lending remains the most important source of external financing for SMEs3 in the EU
and the second one for large corporations4. Furthermore, SMEs have few alternatives to it
since they cannot easily access capital markets directly.
Over the last year there has been an overall improvement in bank financing conditions and
loans are increasing (see Chart 1). Bank lending rates have been trending downwards and
maturities have increased. On average, SMEs perceive a significant improvement in the
availability of bank financing.
Chart 1:
80
Loans to non-financial corporations in the euro area (EUR billion,
quarterly data)
Loan flows to non-fin.
corporations (€ billion)
Balance of opinion
on lending conditions
20
10
60
0
40
-10
-20
20
-30
0
-40
-50
-20
-40
Loans flows to non fin. Corp.
-60
Bank Lending conditions over the
previous 3 months
-60
-70
-80
Source: ECB/Commission
Yet SMEs consider that collateral requirements imposed by banks remain high. The
difficulties of accessing bank loans are particularly affecting smaller and younger companies.
Also, rejection rates remain high in some euro area countries such as the Netherlands
(23.5%), Greece (21.5%) and Ireland (18.7%).
In addition to the problem of loan applications being rejected, some businesses receive less
financing than requested or decline loan offers due to their high costs and/or tight conditions.
As a result, over a quarter of SMEs do not get most of the financing they ask for from their
banks (see Chart 2).
3
4
Bank loans remain the primary form of external financing for 62% of SMEs. Cf. SAFE 2014, European
Commission, European Central Bank.
Behind leasing and factoring.
3
Chart 2:
SMEs not receiving most of the amount of bank loan requested (as % of
total SMEs requesting bank loans)5
Source: ECB/Commission
From a cross-country perspective, financial markets in the euro area progressed steadily
towards integration in the years following the introduction of the single currency. This was
reflected in, among other things, a convergence of interest rates for private sector loans.
However, economic fundamentals were increasingly diverging during that period and
significant macroeconomic imbalances were built up. With the start of the crisis, market
perceptions were adjusted and price trends in the banking sector and financial markets
started to diverge across national borders. These divergences separate countries on the
basis of their perceived capacity to cope with a banking crisis. Although the level of
fragmentation has recently diminished, it remains very high. Bank lending rates now show
less dispersion across Member States, but significant spreads remain (see Chart 3).
Chart 3:
Interest rates for one-year loans up to EUR 1 million
DE
7.5%
ES
FR
IT
EA
6.5%
5.5%
4.5%
3.5%
2.5%
1.5%
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Source: ECB/Commission
As shown in chart 4, interest rates for one-year loans up to EUR 1 million of over 4.5% are
reported in Portugal, Cyprus, Ireland, Greece, and Slovakia, while SMEs in France, Belgium,
Luxembourg and Austria are reporting rates close 2%. Also, the data shows that financing
5
Source: Survey on the access to finance of enterprises (SAFE) 2014, European Commission, European
Central Bank.
4
conditions remain tighter for SMEs than for larger firms, as reflected in the higher interest
rates paid by the former.
Interest rates for one-year loans6
Chart 4:
7%
SMEs
Large entreprises
6%
5%
4%
3%
2%
1%
0%
FR
BE
LU
AT
LT
EA
DE
IT
ES
NL
EE
MT
SI
FI
LV
SK
PT
MT
IE
EL
Source: ECB/Commission
2.3
Non-bank financing
There has been an increase in the issuance of corporate bonds7, partly reflecting a
favourable market environment due to lower interest rates. Yet bonds have mainly been
issued by large firms and have been concentrated in larger markets.
Equity financing is essential for innovative firms that have the potential for rapid growth and
are willing to accept outside equity investors. These firms are in a small minority, but have
the potential to grow into large companies. Overall, equity financing is used by 3 % of
European SMEs. Innovative SMEs use equity financing more often than non-innovative
enterprises8.
The absence of an equity investment culture, differences in information between companies
and investors, a fragmented market and high costs resulting from these deficiencies seem to
be among the main reasons for a lower level of venture capital funds in some Member
States. Despite some improvement, activity levels in this field are still very low. At EU level,
in 2014, venture capital fundraising amounted to 4.1bn, a decrease of 12% compared to
2013. The amount invested by these funds (EUR 3.6 bn) increased on a yearly basis by 6%.
In 2014 around 90% of all venture capital investment was concentrated in eight Member
States9. In relative terms, as a percentage of GDP, there are also significant differences
across countries (see Chart 5). The venture capital markets are more developed in Sweden,
Finland, Ireland and the United Kingdom. Trade sale, write-off and sale of quoted equity
were the most prominent exit routes for venture capital.10
6
Loans up to EUR 250.000 are used as proxy for loans to SMEs, and those over EUR 1 million a proxy for
loans to large enterprises.
7 Cf. Financial integration in Europe 2015, European Central Bank.
8 4% of innovative versus 2% of non-innovative enterprises. Source: Survey on the access to finance of
enterprises (SAFE) 2014, European Commission, European Central Bank.
9 The United Kingdom, Germany, France, Sweden, Netherlands, Finland, Belgium and Spain.
10 Source for figures on venture capital: Invest Europe Yearbook – 2014, Invest Europe.
5
Venture capital as % of GDP (2013)11
Chart 5:
0.07%
0.06%
0.05%
0.04%
0.03%
0.02%
0.01%
0.00%
SE
FI
IE
UK
HU
FR
PT
BE
DK
NL
DE
AT
ES
LU
CZ
BG
PL
RO
IT
EL
Source: Invest Europe
Crowdfunding (both securities-based and lending-based) is also emerging as an important
complement to other sources of finance. Although its size is still low compared to traditional
forms of financing, crowdfunding is rapidly growing. However, the market is concentrated in
a few countries, with the United Kingdom playing a pivotal role.
While the issuance of corporate bonds has increased, in particular in the high-yield segment, the
increase is concentrated in countries with a more stable flow of bank loans. Only few countries
facilitate issuance of SME-bonds, mainly through national or regional stock exchanges.
2.4
Payment times of public authorities
Late payments in commercial transactions can also cause financial problems and
uncertainty for suppliers, particularly small businesses. In the public sector, the average time
it takes for public authorities to pay their bills has improved overall between 2010 and 2015
(see Chart 6).
Chart 6:
Payment times for public authorities, duration/ delays in days
200
Contract (days)
Delay (days)
150
The Late Payments Directive foresees
a maximum duration of 30 days
100
0
2010
2015
2010
2015
2010
2015
2010
2015
2010
2015
2010
2015
2010
2015
2012
2015
2010
2015
2010
2015
2010
2015
2010
2015
2010
2015
2010
2015
2010
2015
2012
2015
2010
2015
2013
2015
2010
2015
2012
2015
2010
2015
2010
2015
2010
2014
2010
2015
2010
2015
2010
2015
50
LT
DE
EE
FI
SK
UK
LV
RO DK
IE
CZ
AT
NL
SE
PL
SI
HU HR
EL
BG
FR
BE
CY
PT
ES
IT
Source: European payment index, Intrum Justitia. Note: No data available for 2015 for Croatia and Cyprus (2014
data used in chart). No data available for 2010 for Romania, Slovenia and Bulgaria (2012 used in chart) and for
Croatia (2013 data used in chart).
11 The graph shows the latest data available for Estonia, Latvia, Lithuania, Slovenia and the Slovak Republic,
which corresponds to 2011. No data was available for Cyprus, Croatia and Malta.
6
3. Identification of policy levers to address the challenges
Member States have taken several policy measures to enhance SMEs' access to finance,
with varying results. Most of the regulatory activity has taken place in those countries where
bank lending to SMEs worsened more during the crisis. The most widespread measure has
been enhancing and strengthening loan guarantee systems, mainly through broadening their
scope and increasing the allocation of public funds into such guarantee schemes.
Other and less widespread policy measures at national level have addressed: further
developing corporate bond markets and alternative markets for SMEs; facilitating the
securitisation of SME loans; easing the access and transfer of financial information;
developing a regulatory framework for crowdfunding; and enhancing the public venture
capital sector. In parallel, promotional financial institutions are being set up in various
Member States.12
4. Cross examination of policy state of play13
At European level, the Capital Markets Union will help bring a more diverse supply of finance
to SMEs by complementing bank financing with deeper, more developed capital markets.
Relevant measures like building a pan-European approach to better connect SMEs with a
wide range of funding sources and facilitating securitisation should support national action to
improve access to finance for SMEs as outlined above. Other measures aim at creating the
appropriate regulatory frameworks for innovative sources of funding to grow, such as
crowdfunding, private placements and loan originating funds, whilst safeguarding investor
protection and financial stability. The Commission will also bring forward a comprehensive
package of measures to support venture capital and risk capital financing in the EU,
including catalysing private investments using EU resources through a pan-European fundsof-funds, regulatory reform, and the promotion of best practice on tax incentives.
Furthermore, the new European Fund for Strategic Investments (EFSI) has been set up and
will allocate a quarter of its resources to support risk finance for SMEs and small mid-cap
companies. This should help SMEs overcome capital shortages by providing higher amounts
of equity and loan finance. Financial intermediaries lending to SMEs and small midcaps can
benefit from guarantees of the European Investment Fund (EIF) for loan portfolios or the
securitisation of loans.
The programme for the Competitiveness of Enterprises and Small and Medium-sized
Enterprises (COSME) is improving access to finance for SMEs through two financial
instruments that have been available since August 2014. COSME financial instruments
operate in conjunction with those of the Horizon 2020 Framework Programme for Research
and Innovation: InnovFin – EU Finance for Innovators.
Date: 26.11.2015
12 For further details, please refer to the Country Report of each Member State,
http://ec.europa.eu/europe2020/making-it-happen/country-specific-recommendations/index_en.htm. See also
the SME Performance Review tool developed by the European Commission, which monitors and assesses
countries' progress in implementing the Small Business Act, including on access to finance, on a yearly basis.
13 "Action Plan on Building a Capital Markets Union", COM(2015) 468
7
Annex: Financial intermediation in the Member States
Chart 8:
Intermediation through financial institutions and financial markets as %
of GDP (2013, 2014 or 2015)
% of GDP
Banks
BE
BG
CZ
DK
DE
EE
IE
EL
ES
FR
HR
IT
CY
LV
LT
LU
HU
MT
NL
AT
PL
PT
RO
SI
SK
FI
SE
UK
(assets)
254,7
108,6
120,3
291,3
242,7
108,8
519,5
199,2
246,0
273,6
129,9
184,6
461,9
123,3
70,2
1865,7
97,2
669,1
307,3
213,1
82,1
233,8
60,4
107,5
78,1
265,3
256,3
571,1
Via institutions
Investment
Insurance
funds
companies
(assets)
(assets)
26,5
77,8
3,4
:
2,7
:
101,6
108,8
53,4
60,0
13,9
:
642,4
:
2,3
7,9
20,5
:
41,6
97,1
1,6
8,8
11,1
:
14,0
:
1,5
4,5
0,7
2,7
5287,3
300,3
11,8
8,3
82,4
132,5
89,0
62,1
48,9
32,5
12,5
:
8,5
:
5,6
2,4
5,9
:
5,2
8,4
38,4
32,2
70,0
97,3
:
:
Pension
funds
(assets)
5,0
:
:
75,1
16,3
:
:
0,2
:
:
18,7
:
:
8,3
4,6
2,5
4,3
0,0
154,3
5,8
:
:
3,8
:
9,7
1,8
24,9
:
IC&PF
(assets)
82,8
10,5
18,2
183,9
76,1
15,4
174,2
8,1
38,0
0,0
27,5
41,1
37,7
12,8
7,3
302,8
12,6
132,5
213,9
38,3
27,8
45,1
6,2
24,0
18,1
34,0
122,1
214,3
Via markets
Listed shares of
Private
Venture
Bonds of NFC Securitisation
NFC
equity
capital
(capitalisation) (outstanding) (outstanding) (investment) (investment)
58,1
9,9
17,0
0,239
0,028
7,1
3,1
0,006
0,006
10,4
7,9
0,194
0,006
82,7
9,6
0,1
0,486
0,026
43,8
4,4
2,3
0,247
0,023
8,6
7,0
186,4
1,0
18,2
0,274
0,049
13,3
0,9
13,6
0,000
0,000
36,5
2,0
15,6
0,151
0,009
65,2
24,2
3,2
0,395
0,030
30,4
4,8
18,8
8,1
9,4
0,113
0,002
7,4
5,5
3,6
0,7
0,0
9,4
0,0
110,5
42,0
0,057
0,009
8,3
2,0
0,165
0,031
10,9
4,3
47,7
11,7
36,8
0,472
0,026
18,8
11,6
0,6
0,088
0,019
17,3
4,8
0,1
0,061
0,005
22,6
19,8
20,0
0,153
0,029
9,3
0,1
0,052
0,004
14,2
2,9
2,7
4,3
68,2
15,6
0,5
0,348
0,060
88,1
20,2
0,330
0,066
74,4
22,7
14,3
0,424
0,038
Source: Eurostat, ECB, Securities Industry and Financial Markets Association (SIFMA), European Private Equity
& Venture Capital Association (EVCA)
Banks are the largest financial intermediaries in all Member States, although their relative
importance varies significantly from one country to another. In most EU countries, total
assets of the banking sector represent twice to four times national GDP. However, this ratio
is much higher in Malta, Ireland and Cyprus, which underlies the importance of the banking
sector in these countries. Luxembourg is an outlier, with total bank assets exceeding GDP
up to twenty times. On the other hand, in the still converging financial markets of Central and
Eastern Europe, total assets of the banking sector are typically about the same size as
national GDP, the lowest level of banking penetration being recorded in Romania (60% of
GDP), Lithuania (70%) and Slovakia (78%). While loans typically represent the bulk of the
banking assets, most banks also invest in capital markets.
Insurance companies and pension funds are the key institutional investors intermediating
funds from households to capital markets. Great diversity in the relative importance of these
institutions in various markets can be observed. In Luxembourg, the assets of insurance
companies amount to 300% of its GDP. Other countries with a sizable insurance sector are
Malta, Denmark, France, Sweden and Belgium. On the other hand, countries in Central and
Eastern Europe typically have smaller insurance sectors. Regarding pension funds, the
Netherlands stands out with total assets amounting to 154% of GDP. Except for Denmark,
where pension funds' assets represent 75% of GDP, this ratio typically does not exceed 20%
in other Member States.
8
Diversity is also characteristic of the European investment fund sector. Luxembourg and
Ireland, which are the two main EU hubs for fund registration, are the outliers: the assets
held by investment funds represent 53 and 6.4 times their national GDP, respectively. In
other EU Member States, the size of the asset portfolio held by investment funds ranges
between 20% and 100% of GDP in countries with significantly developed capital markets,
while it is below 15% of GDP in all Central and Eastern Europe countries. The investment
funds sector is particularly underdeveloped in Lithuania, Latvia, Croatia Greece, the Czech
Republic, and Bulgaria, where investment funds' assets represent less than 3.5% of GDP.
The size of the stock market also varies greatly from one Member State to another. The
capitalisation of publicly-listed non-financial companies (NFC) relative to GDP of the country
where the NFC is registered is highest in Ireland (190%) and Luxembourg (110%). Public
equity markets are also large in the UK, Nordic countries, France, Belgium and Germany. In
all Central and Eastern Europe countries except Poland and the Czech Republic, public
equity shares of NFCs represent less than 10% of GDP.
In all EU Member States, corporate bond markets are smaller than stock markets. However,
national differences still prevail. Luxembourg has the most developed bond market relative
to its size, with the value of outstanding bonds reaching 42% of GDP. The size of the
national bond capital market exceeds 15% of GDP in France, UK, Sweden, Portugal and
Finland. On the other side of the spectrum, several Member States feature very small
corporate bond markets, in particular Romania, Latvia and Lithuania (below 1%), but also
Ireland, Greece, Estonia, Hungary and Spain.
The level of development of securitisation indicates the degree to which financial
intermediaries (primarily banks) use capital markets to fund their portfolios. It also varies
greatly between Member States. Although securitisation is predominantly used for mortgage
and consumer products, some corporate loans and bonds are also used as underlying
assets. The Netherlands has the largest securitisation market (37% of GDP), with the bulk of
the collateral being mortgage loans. Some countries also have relatively developed
securitisation markets, with stocks of securitised assets representing between 15% and 20%
of GDP (Portugal, Ireland, Spain, UK). In some other large European countries, even though
the amount of securitised assets outstanding is relatively low as a percentage of GDP, the
securitisation market is also sizable in absolute numbers (France, Germany, Italy). In most
other Member States, the value of the outstanding securitised assets relative to the size of
the economy is very small.
Private equity and venture capital, even if limited in all EU Member States, are important
sources of funding, especially for higher risk and innovative projects. They can still be
regarded as niche solutions compared to traditional financing venues. Taking all types of
private equity investment into consideration, private equity activity is highest in the most
developed capital markets (the large Member States, Benelux, the Nordic countries), but
even in these countries it remains below 0.5% of GDP. Venture capital, used for start-ups
and more risky undertakings, constitutes a small fraction of private equity. This type of
financing is most developed in Sweden (0.07% of GDP), Finland, Ireland and the UK.
9