Financing SMEs and Entrepreneurs 2022

28. Luxembourg

Key facts on SME financing

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 28.1.Scoreboard for Luxembourg

Indicator	Unit	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020
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	95 633	84 091	62 083
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	10 184	8 682
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	10.92	12.11	13.98
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	0.42	0.57
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	1.65	1.57
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	1.12	1.10
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	0.53	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	27.02	22.68
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	113 098	173 872	199 386
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	-69.88	91.22	53.74	14.67
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	1 262	1 198
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	5.96	-5.07

Source: See Table 28.4.

SMEs in the national economy

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.

Table 28.2. Firms in Luxembourg in 2018

By firm size

Firm size (employees)	Number of firms	%	Number of persons employed	%	Value added at factor cost per class size (in EUR million)	%
All firms	34.347	100,0	286.339	100,0	26.698,0	100,0
SME (0-249)	34.179	99,5	189.019	66,0	16.799,0	62,9
Micro (0-9)	29.951	87,2	48.970	17,1	5.385,7	20,2
Small (10-19)	2.212	6,4	29.925	10,5	2.209,2	8,3
Small (20-49)	1.307	3,8	39.198	13,7	2.938,9	11,0
Medium (50-249)	709	2,1	70.926	24,8	6.265,2	23,5
Large (250 +)	168	0,5	97.320	34,0	9.898,9	37,1

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 2007-20.

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.

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 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.

Figure 28.1. Trends in interest rate in Luxembourg

Source: Banque Centrale du Luxembourg: Capital markets and interest rates, Table 3.3.1.

Statlink

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.

Alternative sources of SME financing

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).

Table 28.3. Venture and growth capital investments in Luxembourg by stage

	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020
Seed	200	0	0	1 000	175	750	0	300	101	145	342	9 715	435	700
Start-up	5 225	3 050	1141	1 500	5 334	4 153	6 742	3 190	5 458	3 653	13 078	1 506	15 025	34 843
Later stage venture	10 286	30 363	4 589	1 010	25	6845	223	800	338	150	3200	4638	0	9127
Growth	87 129	270 230	46 607	124 628	275 867	74 464	24 125	124 182	138 471	192 398	42 525	96 186	162 412	154 716
Total	102 840	303 643	52 337	128 138	281 401	86 212	31 090	128 472	144 368	196 346	59 145	112 046	177 872	199 386

Note: EUR thousands

Source: Invest Europe / European Data Cooperative

Table 28.4. Venture and growth capital investments in Luxembourg by industry

	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020
Agriculture	0	0	0	8.000	101	806	0	0	0	0	0	0	0	0
Business products and services	25 017	9 100	2 308	17 000	21 871	70	121	428	7 281	5 800	300	2 336	6 769	1 500
Chemicals and materials	0	0	0	305	1917	0	0	0	0	0	0	10000	0	0
ICT (Communications, computer and electronics)	59 035	17 745	21 793	64 140	8 068	37 003	992	11 525	3 738	16 625	20 508	19 530	19 352	88 286
Construction	0	0	1 000	645	0	0	0	0	14 500	0	2 450	0	10 800	0
Consumer goods and services	0	250	0	14 624	23 500	20 192	18 600	8135	17 558	1052	26 881	8 133	12 589	3 922
Energy and environment	8 000	23 550	200	0	15	15 322	1 468	1 400	34 787	1 689	549	0	0	700
Financial and insurance activities	10 565	249 026	20 263	690	177 934	9535	293	104 058	51 210	144 135	1060	51 030	4 083	64 071
Real estate	0	0	0	0	0	0	0	0	0	0	0	0	20 230	500
Biotech and healthcare	224	1 444	6 774	22 734	46 498	359	3274	136	2814	2 303	5 122	5 295	77 342	39 824
Transportation	0	2 529	0	0	250	2925	5 650	2 790	12 480	0	0	0	5750	0
Other	0	0	0	0	1246	0	692	0	0	24 743	2 274	16 775	20 959	582
Total	102 840	303 643	52 337	128 138	281 401	86 212	31 090	128 472	144 368	196 346	59 145	113 098	177 872	199 386

Note: EUR thousands

Source: Invest Europe / European Data Cooperative

Other indicators

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.

Government policy response

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.

Figure 28.2. Trends in SME and entrepreneurship finance in Luxembourg

Source: See Table 28.4.

Statlink

Table 28.5. 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

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