Financing SMEs and Entrepreneurs 2020

37. Portugal

Key facts on SME financing

In 2017, SMEs comprised 99.7% of enterprises in Portugal, employed 72.4% of the labour force and were responsible for 58.1% of the turnover of the non-financial business economy.

In 2018, the global stock of business loans further decreased by 4.8% year-on-year, below the decrease in SME lending which stood at 6.2%. The share of SME loans in total business loans remained slightly above 85% since 2015. It should be noted that the share of SME loans is above 80% for more than a decade.

The decline in SME lending was more pronounced in short-term SME loans, having dropped by 62% over the 2010-18 period. Despite this long term trend, since 2016, the share of short-term in total SME loans is rising. In 2018, such loans registered an increase of 1.8% compared to the previous year, whereas long-term SME loans decreased by 1.6% year-on-year.

The share of government guaranteed loans in total SME loans grew significantly, from 5.4% in 2009 to 10.5% in 2018, demonstrating the sustained public efforts to support SMEs’ access to finance.

The average interest rate for SME loans decreased to 3.13% in 2018, marking the sixth year in a row of decline, after the 2012 peak of 7.6%. The interest rate spread between SMEs and large firms increased from 1.9 to 2.2 percentage points between 2009 and 2012, and decreased since then, to 1.2 percentage point in 2018, indicating an improvement in SME financing conditions.

After a continuous decline in venture capital investments since 2007, there were signs of recovery since 2012. Total venture capital investments in 2015 increased again to EUR 59 million, +354% compared to their 2011 value. Nevertheless, the amount of venture capital invested dropped again to EUR 21 million in 2016, a 64.4% decrease from 2015, but recovered in the last two years, and in 2018, total venture capital investments reached EUR 32 million, with an increase of 23.1% year-on-year.

Payment delays rose from 35 days in 2009 to 41 days in 2011, and then almost halved again from 40 days in 2012 to 12 days in 2018, decreasing steadily in the last five years.

Following four years of continuous increase (2009-12) in the number of bankruptcies, 2018 ended with a new 13.1% reduction from 2017, with 2 694 bankruptcies, at pre-crisis levels.

SMEs’ access to finance has been a major priority for the government. In this context, several credit lines were made available to facilitate SMEs’ access to credit. The government programmes “SME Invest/Growth and Capitalizar” offered credit lines with a total stock of EUR 20.2 billion, and long-term maturities (up to 7 years). They also offer preferential conditions, such as subsidised risk-sharing public guarantees, which cover between 50% and 75% of the loan. These credit lines aim to support fixed investment as well as SME working capital.

On the equity side, several venture capital funds and business angels co-investment vehicles have been implemented, totalling EUR 270 million for venture capital investments in the start-up and expansion phases (2017-2020). To reinforce the entrepreneurial ecosystem, the government created in 2018, a venture capital fund with the European Investment Fund (EIF), totalling EUR 100 million, the “Portugal Tech”.

The Portuguese Government approved a strategic program, “Capitalizar”, to support the capitalization of Portuguese companies, relaunch investment and facilitate SMEs’ access to funding, mainly through:

• Financial instruments of direct or indirect participation in companies;

• Special financing instruments to quasi-equity capital;

• Tax measures to encourage firm capitalisation.

Table 37.1. Scoreboard for Portugal

Indicator	Unit	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018
Debt
Outstanding business loans, SMEs	EUR billion	83.8	91.7	92.3	90.8	87	79.8	73.6	70.9	68.1	66.8	62.7	58.8
Outstanding business loans, total	EUR billion	102	112.4	114	111.5	107.3	98.8	91.8	86.3	79	77.3	72.6	69.1
Share of SME outstanding loans	% of total outstanding business loans	82.17	81.57	80.96	81.45	81.13	80.75	80.13	82.19	86.2	86.4	86.4	85.2
New business lending, total	EUR billion	64.3	61.8	46.3	45.6	45	45.6	49.1	41.2	33.8	29.8	28.8	31.6
New business lending, SMEs	EUR billion	28.9	26.4	23.1	9	14.2	12.5	11.9	11.9	11.9	11.3	10.9	11.2
Share of new SME lending	% of total new lending	44.9	42.78	49.97	19.72	31.63	27.52	24.16	28.79	35.2	37.88	37.74	35.56
Short-term loans, SMEs	EUR billion	..	..	28.9	26.7	23.8	16.7	14.2	11.4	9.8	10.2	10.1	10.3
Long-term loans, SMEs	EUR billion	..	..	58.8	59.2	56.1	53.2	47.8	47.3	46.1	44.6	43.1	42.4
Share of short-term SME lending	% of total SME lending	..	..	32.94	31.09	29.77	23.91	22.94	19.41	17.48	18.69	18.98	19.5
Government guaranteed loans, SMEs	EUR billion	..	..	5	6.8	6.1	5.7	5.8	5.5	5.6	5.7	6.1	6.2
Non-performing loans, total	% of all business loans	1.83	2.44	4.22	4.59	6.94	10.54	13.46	15.05	15.91	15.85	13.46	9.43
Non-performing loans, SMEs	% of all SME loans	4.14	4.38	4.95	5.41	8.18	12.33	15.77	17.32	17.92	17.88	15.1	10.38
Interest rate, SMEs	%	7.05	7.64	5.71	6.16	7.41	7.59	6.82	5.97	4.6	3.83	3.42	3.13
Interest rate, large firms	%	5.29	5.92	3.84	3.91	5.4	5.43	4.97	4.37	3.25	2.69	2.14	1.93
Interest rate spread	% points	1.76	1.72	1.87	2.25	2.01	2.16	1.85	1.6	1.35	1.14	1.28	1.2
Collateral, SMEs	% of SMEs needing collateral to obtain bank lending	..	..	85.95	86.3	85.16	84.76	83.42	84.88	88.88	88.78	89.71	89.57
Non-bank finance
Venture and growth capital	EUR million	120.8	65.3	60.8	68.9	110.7	59.6	127.6	175.9	114.9	44.9	70.8	364.5
Venture and growth capital (growth rate)	%, Year-on-year growth rate	..	-45.9	-6.9	13.4	60.6	-46.2	114.1	37.9	-34.7	-60.9	57.5	414.6
Leasing and hire purchases	EUR billion	..	..	5.3	5.2	3.4	3	2.7	2.4	2.3	2.3	2.2	2.2
Factoring and invoice discounting	EUR million	..	..	621	733	402	338	376	476	547	441	421	454
Other indicators
Payment delays, B2B	Number of days	39.9	33	35	37	41	40	35	33	21	20	20	12
Bankruptcies, SMEs	Number	2 612	3 528	3 815	4 091	4 746	6 688	6 030	4 019	4 714	3 620	3 099	2 694
Bankruptcies, SMEs (growth rate)	%, Year-on-year growth rate	..	35.1	8.1	7.2	16	40.9	-9.8	-33.3	17.3	-23.2	-14.39	-13.1

Source: See Table 37.4.

SMEs in the national economy

In 2017, SMEs comprised 99.7% of enterprises in Portugal, employed 72.4% of the labour force and were responsible for 58.1% of the turnover and 66.3% of the investment of the non-financial business economy. The vast majority of enterprises (88.0%) were micro-enterprises, while 10% were small and 1.6% medium-sized enterprises. In the last three years, a small change in the structure of SMEs took place, as the weight of small companies has been slightly increasing to the detriment of micro-enterprises.

Table 37.2. Distribution of firms in Portugal, 2014-17

By firm size

	2014		2015		2016		2017
Firm size (employees)	Number	%	Number	%	Number	%	Number	%
All enterprises	362 418	100.0	372 201	100.0	380 935	100.0	394 967	100.0
SMEs (1-249)	361 447	99.7	371 188	99.7	379 897	99.7	393 823	99.7
Micro (1-9)	320 954	88.6	328 771	88.3	335 844	88.2	347 706	88.0
Small (10-49)	34 880	9.6	36 594	9.8	37 925	10.0	39 613	10.0
Medium (50-249)	5 613	1.5	5 823	1.6	6 128	1.6	6 504	1.6
Large (250+)	971	0.3	1013	0.3	1038	0.3	1144	0.3

Note: Includes non-financial business sector.

Source: Statistics Portugal, IP

SME lending

The recent evolution in lending policy over the 2010-18 period, driven by balance sheet constraints and a less favourable perception of risk, has resulted in stricter credit standards and tighter lending conditions. Associated with it, a consistently declining trend in lending stocks has been observed since 2010. In 2018, the global stock of business loans decreased by 4.8% year-on-year, less pronounced than the decrease in SME lending which stood at 6.2%. The decline for total business loans was less pronounced than in 2017 which saw a drop of more than 6.1%. . SME outstanding loans have had a steady decrease at around 6.1% in the period 2016-2018. The share of SME loans in total business loans remained slightly above the 85%. It should be noted that the share of SME loans is above 80% for more than decade.

Over the 2010-18 period, SME lending stocks declined by almost 35%, while total business loans dropped by 38%. The decline in SME lending was more pronounced in short-term SME loans, having dropped by 62% over the 2010-18 period. Despite this long term trend, since 2016, the share of short-term in total SME loans is rising. In 2018, such loans registered an increase of 1.8% compared to the previous year, whereas long-term SME loans decreased by 1.6% year-on-year. According to the data, SMEs continue to be affected by difficulties in accessing short-term financing to cover their short-term liquidity management. Since 2015, short-term loans represent less than 20% of all SME loans. However, in a three-year perspective (2016-2018) we can conclude that the reduction of SME lending has been largely at the expense of long-term loans. One potential cause of this was that banks made it much more difficult for SMEs to access medium/long-term lending as they wish to reduce their long-term risk expositions to SMEs.

The share of government guaranteed loans in total SME loans has been increasing importantly over the whole period, with a steady acceleration, from 5.4% in 2009 to 10.5% in 2018, demonstrating the sustained public efforts to support SME access to finance. Total government guaranteed loans are still increasing and registered a 1.9% year-on-year growth in 2018.

Credit conditions

Over the 2009-18 period, banks significantly tightened lending conditions to companies, setting up more restrictive financing terms. SMEs were required to put up higher and better quality collaterals to access bank financing.

As a result, among other factors, the average interest rate for SME loans decreased to 3.13% in 2018, marking the sixth year in a row where this value was in decline, after the 2012 peak at 7.6%. The interest rate spread between SME loans and large firm loans increased from 1.9 to 2.2 percentage points (pp) from 2009 to 2012. Since then, this spread has gradually decreased, to reach 1.2 pp in 2018, indicating an improvement in SME financing conditions. 90% of collateralised loans were SME loans in 2018, at almost constant levels throughout the past four years, underlying the tight collateral requirements for SMEs compared to large enterprises.

Alternative sources of SME financing

The global amount of venture capital invested in SMEs fell significantly over the 2009-11 period, reaching EUR 13 million in 2011, 69% less than in 2009, due to investors’ high risk aversion as a consequence of the financial crisis. However, since 2012, there were signs of recovery, with total venture capital investments in 2015 having increased again by 353.8% to EUR 59 million compared to their 2011 value.

Nevertheless, the amount of venture capital invested dropped again to 21 million in 2016, a 64.4% decrease from 2015, but recovered in the last two years. This fluctuation in the last two years could have an explanation related with the ending of the investment period of the SME venture capital funds supported by European Regional Development Funding (ERDF) and the start of new ones and the public policies for supporting a strong entrepreneurial ecosystem.

Table 37.3. Equity capital invested by business stage in Portugal, 2007-18

In EUR million

Stage	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018
Early stage	22.9	41.4	30.5	53.5	9.4	11.3	24.0	39.1	48.0	19.1	20.8	25.9
Seed	1.8	1.2	0.1	0.1	0.8	1.0	7.1	6.4	4.9	3.3	2.0	4.9
Start up	21.1	40.2	30.4	53.4	8.6	10.3	16.9	32.7	43.1	15.8	18.8	21.0
Later stage	89.9	15.8	4.4	1.9	3.3	3.9	15.0	15.7	10.6	1.6	5.1	6.1
Total	112.8	57.2	34.9	55.4	12.7	15.2	39.0	54.8	58.6	20.7	25.9	32.0

Source: Portuguese Venture Capital Association, Invest Europe.

Other indicators

Payment delays, an important cause of difficulties on SME cash flow, halved from 41 days in 2011, to 12 days in 2018, which represents a sustained decline over the last eight years. The number of enterprise bankruptcies almost doubled over the 2009-12 period, with total bankruptcies increasing from 3 815 (in 2009) to 6 688 (in 2012). This significant increase, although transversal to most sectors of activity, can be mainly attributed to the construction, real estate and trade sectors.

This translates into divergences in the evolution of lending across sectors of activity, with companies active in the above-mentioned sectors facing more challenges when trying to access bank financing. After four years (2009-12) of continuous increase in the number of bankruptcies, figures declined between 2012 and 2018, except for a small increase in 2015, dropping from 6 688 in 2012 to 2 694 in 2018, at pre-crisis levels.

Government policy response

The global financial crisis has undoubtedly affected SME demand for credit in Portugal. In addition, financiers have adopted, as in other countries, a more conservative position in terms of credit decisions, particularly concerning financing conditions.

In the framework of anti-crisis measures adopted by Portugal, SMEs’ access to finance has been a major priority for the government. In this context, several “SME Invest / Growth and Capitalizar” credit lines were issued since 2008 in order to facilitate SME access to credit. These credit lines, with a total stock of bank credit of EUR 20.2 billion, have long-term maturities (up to 7 years) and preferential conditions, partially subsidised interest rates and risk-sharing public guarantees, which cover between 50% and 75% of the loan. These credit lines aim to support fixed investment as well as SME working capital.

As of 30 June 2019, and since 2008, about 227 162 projects were eligible for the “SME Invest / Growth and Capitalizar” credit lines. EUR 20.2 billion in finance were provided to about 99 855 SMEs, supporting about 1.2 million jobs. As part of the global package of the “SME Invest/Growth and Capitalizar” credit lines, the government recapitalised the Mutual Counter-Guarantee Fund, allowing SMEs to benefit from a higher level of public guarantees, as we can verify by the weight of the government guaranteed loans in total SME loans in the scoreboard – in 2018, they represent 10.5%.

In order to reduce information asymmetry between the financial system and SMEs, Portugal has implemented a programme managed together by IAPMEI and Turismo de Portugal, in partnership with several banks and Portuguese mutual guarantee societies. This programme, called "SME Leader", is a business qualification aimed at signalling the merits of the best national SMEs. The qualification process creates conditions for strengthening their reputation in the market, thus allowing optimum access to finance for these companies.

The programme uses a process of positive discrimination of national SMEs with better risk profiles, through a scoring mechanisms based on clear performance standards for the whole SME financing ecosystem. The number of “SME Leader” firms increased from 2 996 in 2008 to 8 044 in 2018, despite the increasingly more demanding prerequisites. In 2018, 70.8% of the firms with status of “SME Leader” were small businesses, with more than 30% being industrial. Given their lower risk profile, they are prime targets for lending. These companies obtained, as of December 2018, around EUR 7.1 billion worth of credit lines supported by public guarantees, through more than 20 387 credit operations, representing almost 36.3% of total of loans.

Other recent initiatives were implemented to reinforce SMEs’ equity. They include several venture capital funds and business angels co-investment vehicles, totalling EUR 270 million for venture capital investment in the start-up and expansion phases (2017-2020). To reinforce the entrepreneurial ecosystem, the government created in 2018, a venture capital fund with the European Investment Fund (EIF), the “Portugal Tech”, totalling EUR 100 million.

In 2016, the Government approved the programme “Capitalizar”, a strategic program which includes 64 measures designed, namely, to support the capitalisation of Portuguese companies, to relaunch investment and to facilitate SMEs’ access to funding, mainly through:

• Financial instruments of direct or indirect participation in companies;

• Special financing instruments to quasi-equity capital;

• Tax measures to encourage firm capitalization.

This programme has five different pillars:

• Axis 1. Reduce administrative burden and systemic framework: review legislation currently in place, with a view to minimizing administrative burden as well as to improving recapitalization solutions;

• Axis 2. Tax measures: strengthen incentives to improve neutrality in the taxation of equity and debt, increase Portuguese competitiveness in investment attraction and create a favorable tax framework for business concentration processes;

• Axis 3. Corporate restructuring: optimize the legal framework for the restructuring of viable companies and strengthen the financial instruments available for the capitalization of viable companies;

• Axis 4. Financial leveraging and investment: strengthen mechanisms and instruments that facilitate capitalization and financing of SMEs and Midcaps, with a view to promote new and alternative funding sources, while accelerating access by Portuguese companies to structural funds and foreign investors;

• Axis 5. Boosting the capital markets: diversify funding sources for SMEs and Mid-Caps, notably through instruments favoring financial disintermediation and direct access to investors.

Figure 37.1. Trends in SME and entrepreneurship finance in Portugal

Note: Interest rates on new loans up to EUR 1 million (prior to 2010) and loans up to EUR 0.25 million (in 2010) are used as proxy for SME loans. Data on interest rates cover only loans granted by banks

Source: See Table 37.4.

Statlink

Table 37.4. Source and definitions for Portugal’s Scoreboard

Indicators	Definition	Source
Debt
Business loans, SMEs	Performing and non-performing loans outstanding granted by banks and other financial institutions. Performing loans do not include Factoring without recourse. Small and medium sized companies are defined as companies with less than 250 employees and a turnover below EUR 50 million, excluding holding companies. Includes non-employer firms.	Bank of Portugal, Central Credit Registry
Business loans, total	Performing and non-performing loans outstanding granted by banks and other financial institutions. Performing loans do not include factoring without recourse. Includes non-employer firms.	Bank of Portugal, Central Credit Registry
Short-term loans, SMEs	Performing loans; maturity up to 12 months. Excluding holding companies and sole traders.	Bank of Portugal, Central Credit Registry
Long-term loans, SMEs	Performing loans; maturity more than 12 months. Excluding holding companies and sole traders.	Bank of Portugal, Central Credit Registry
Government guaranteed loans, CGF	Government guaranteed loans to SMEs by the public Mutual Counter-guarantee Fund.	SPGM, SA
Non-performing loans, total	Loans outstanding overdue for more than 30 days; in the case of factoring without recourse only amounts overdue for more than 90 days are included.	Bank of Portugal, Central Credit Registry
Non-performing loans, SMEs	Loans outstanding overdue for more than 30 days; in the case of Factoring without recourse only amounts overdue for more than 90 days are included.	Bank of Portugal, Central Credit Registry
Non-performing loans, large	Loans outstanding overdue for more than 30 days; in the case of factoring without recourse only amounts overdue for more than 90 days are included. Large companies include holding companies.	Bank of Portugal, Central Credit Registry
Interest rate, average SME rate	No data on interest rates by size of the corporations is available. As a proxy to SME, we considered data on Interest rate on new loans up to EUR 1 million (prior to 2010) and loans up to EUR 0.25 million (onwards). Data on interest rates covers only loans granted by banks.	Bank of Portugal, Monetary and Financial Statistics
Interest rate spread (between average SME rate and large firm rate)	No data on interest rates by size of the corporations is available. As a proxy to SME, we considered data on Interest rate on new loans up to EUR 1 million (prior to 2010) and loans up to EUR 0.25 million (in 2010). For large firms we considered data on Interest rate on new loans over EUR 1 million. Data on interest rates covers only loans granted by banks.	Bank of Portugal, Monetary and Financial Statistics
Collateral, SMEs	The percentage of collateralised loans granted to SMEs in total collateralised loans. Information on collateral is only available from January 2009 onwards. SMEs defined following the EU definition (less than 250 employees and annual turnover below EUR 50 million and/ or balance sheet below EUR 43 million, Com Recommendation 2003/361/EC). Excluding holding companies and sole traders.	Bank of Portugal, Central Bank Registry
Non-bank finance
Venture capital, SMEs	Investment in SMEs. Data include early stage and expansion phases, turnaround and buyout/replacement is excluded.	Portuguese Venture Capital Association, Invest Europe
Other indicators
Payment delays	Average payment delay in days for business-to-business. All enterprises.	Intrum Justitia, European Payment Index
Bankruptcies, total	Data include all dissolved companies.	COSEC, SA

References

Banco de Portugal (2018), “Financial Stability Report, December 2018”, https://www.bportugal.pt/sites/default/files/anexos/pdf-boletim/ref_12_2018_en.pdf

https://www.bportugal.pt/sites/default/files/anexos/pdf-boletim/ref_12_2017_en_0.pdf

Banco de Portugal (2018) , “Bank Lending Survey”,

https://www.bportugal.pt/en/publications/banco-de-portugal/all/114

Statistics Portugal (2019), Empresas em Portugal 2017, https://www.ine.pt/xportal/xmain?xpid=INE&xpgid=ine_publicacoes&PUBLICACOESpub_boui=358546042&PUBLICACOESmodo=2&xlang=pt