Financing SMEs and Entrepreneurs 2022

36. Portugal

Key facts on SME financing

In 2019, SMEs comprised 99.7% of enterprises in Portugal, employed 71.8% of the labour force and were responsible for 57.7% of turnover and 82.8% of investment volumes.

In 2020, the total stock of business loans further increased by 10.4% year-on-year, below the increase in SME lending (12.3%). The share of SME loans in total business loans has been around 80% for the last five years.

The increase in SME lending was more pronounced for short-term SME loans, with an increase by 26% year-on-year. This runs contrary to the trend observed over the past decade when short-term loans declined by 64% and the share of long-term loans rose to more than 80% of total outstanding business loans.

The share of government-guaranteed loans in total SME loans grew significantly, from 5.4% in 2009 to 23% in 2020, demonstrating the sustained public efforts to support SMEs’ access to finance. In 2020, this instrument registered an increase of 92% compared to the previous year, largely due to the government's intervention to mitigate the impacts of the COVID-19 crisis on SME financing.

The average interest rate for SME loans decreased to 2.48% in 2020, marking the sixth consecutive year of decline, after the 2012 peak of 7.6%. The interest rate spread between SMEs and large firms increased from 1.84 to 2.16 percentage points between 2009 and 2012, and decreased since then, to 0.78 percentage point in 2020, pointing to an improvement in SME financing conditions.

Trends in venture capital have been uneven. After a continuous decline in venture capital investments since 2007, there were signs of recovery since 2012. Total venture capital investments in 2014 increased to EUR 107 million, +312% compared to their 2011 value. Nevertheless in 2016, the amount of venture capital invested dropped again to EUR 18 million, an 82% decrease from 2015, but recovered in the last four years, and in 2020, total venture capital investments reached EUR 42 million, an increase of 133% compared to 2016.

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 2020, decreasing steadily in the last five years.

Following four years of continuous increase (2009-12) in the number of bankruptcies, 2020 closed with a decline of 2.3% compared to 2019, with 2 502 bankruptcies, despite the impact of the COVID-19 crisis on the economy. This decline in part can be explained by government measures that have allowed companies to avoid filing for bankruptcy during the COVID-19 crisis.

SME access to finance has been a major priority for the government. In this context, several credit lines have been made available to facilitate access to credit for SMEs. For example, the government programmes “SME Invest/Growth” and Capitalizar have offered credit lines since 2008. As of 2020, about 245 247 projects were eligible for these credit lines and EUR 21.6 billion were provided to 106 238 SMEs, supporting about 1.3 million jobs.

On the equity side, several venture capital funds and business-angel co-investment vehicles have been implemented, totalling EUR 270 million for venture capital investments in the start-up and expansion phases (2017-2021). 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 programme, called Capitalizar, to support the capitalisation 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 of quasi-equity capital;

• Tax measures to encourage firm capitalisation.

In order to mitigate the effects of the COVID-19 crisis on the economy, the Portuguese government launched a set of measures aimed at SMEs, of which the following have an impact on their financing:

• A set of credit lines backed by public guarantees; these credit lines aim to support the working capital needs of SME, as result of the effects of the COVID-19 crisis;

• A moratorium regime with regard to the fulfilment of obligations arising from credit agreements;

• A grant programme to support lost funds due to loss of billing, within the scope of the COVID-19 pandemic;

• Direct loans;

• An exceptional and temporary regime for compliance with tax obligations and social contributions, within the scope of the pandemic.

Table 36.1. Scoreboard for Portugal

Indicator	Unit	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020
Debt
Outstanding business loans, SMEs	EUR billion			90.2	88.2	87.0	79.7	73.9	70.3	65.8	61.3	57.4	54.1	52.5	58.9
Outstanding business loans, total	EUR billion	102	115.8	117.8	114.6	113.8	105.3	99.3	86.5	82.2	77.3	73.1	69.5	67.0	73.9
Share of SME outstanding loans	% of total outstanding business loans			76.61	76.96	76.45	75.68	74.41	81.30	80.13	79.36	78.53	77.69	78.35	79.73
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	32.7	33.5
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	11.8	11.8
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	35.55	36.11	35.28
Short-term loans, SMEs	EUR billion	..	..	24.7	22.7	21.3	15.3	13.4	11.5	9.5	9.5	8.9	7.3	6.5	8.1
Long-term loans, SMEs	EUR billion	..	..	65.6	65.5	65.7	64.4	60.5	58.7	56.3	51.9	48.5	46.8	46.0	50.8
Share of short-term SME lending	% of total SME lending	..	27.34	27.34	25.77	24.47	19.21	18.13	16.37	14.51	15.43	15.53	13.50	12.38	13.89
Government guaranteed loans, SMEs	EUR billion	..	..	5	6.8	6.1	6.0	5.8	5.5	5.6	5.7	6.1	6.2	6.3	13.6
Non-performing loans, total	% of all business loans	1.50	2.20	3.90	4.10	6.00	9.40	11.80	14.20	15.20	15.00	12.70	7.80	4.60	3.32
Non-performing loans, SMEs	% of all SME loans			4.67	5.00	7.33	11.76	14.82	16.50	17.89	17.62	14.65	8.83	5.15	3.87
Interest rate, SMEs	%	7.05	7.64	5.72	5.45	7.41	7.59	6.82	5.97	4.6	3.83	3.42	3.13	2.93	2.48
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	1.85	1.70
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	1.08	0.78
Collateral, SMEs	% of SMEs needing collateral to obtain bank lending	..	..	76.25	81.16	82.63	82.15	83.09	80.14	81.84	79.60	80.98	83.13	86.95	89.88
Non-bank finance
Venture and growth capital	EUR million	129	92	70	74	26	53	106	106	102	18	29	30	69	42
Venture and growth capital (growth rate)	%, Year-on-year growth rate	..	-28.7	-23.9	5.7	-64.9	103.9	100.0	0.0	-3.8	-82.4	61.1	3.5	130.0	-39.1
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	1.9	1.9
Factoring and invoice discounting	EUR million	..	..	621	733	402	338	376	476	547	441	418	930	855	513
Other indicators
Payment delays, B2B	Number of days	39.9	33	35	37	41	40	35	33	21	20	20	12	18	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	2 560	2502
Bankruptcies, SMEs (growth rate)	%, Year-on-year growth rate	..	35.1	8.1	7.2	16.0	40.9	-9.8	-33.4	17.3	-23.2	-14.4	-13.1	-5.0	-2.3

Source: See Table 36.4.

SMEs in the national economy

In 2019, SMEs comprised 99.7% of enterprises in Portugal, employed 71.8% of the labor force and were responsible for 57.7% of the turnover and 82.8% 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.

Table 36.2. Distribution of firms in Portugal, 2016-19

By firm size

	2016		2017		2018		2019
Firm size (employees)	Number	%	Number	%	Number	%	Number	%
All enterprises	380,935	100.0%	394,967	100.0%	413,767	100.0%	438,959	100.0%
SMEs (1-249)	379,897	99.7%	393,823	99.7%	412,568	99.7%	437,668	99.7%
Micro (1-9)	335,844	88.2%	347,706	88.0%	364,074	88.0%	387,001	88.2%
Small (10-49)	37,925	10.0%	39,613	10.0%	41,650	10.1%	43,492	9.9%
Medium (50-249)	6,128	1.6%	6,504	1.6%	6,844	1.7%	7,175	1.6%
Large (250+)	1,038	0.3%	1,144	0.3%	1,199	0.3%	1,291	0.3%

Note: Includes non-financial business sector.

Source: Statistics Portugal, IP

SME lending

In the run-up to the COVID-19 crisis (2010-2019), the evolution in lending policy was driven by balance sheet constraints and a less favourable perception of risk, resulting in stricter credit standards and tighter lending conditions. Associated with it, a consistently declining trend in lending stocks has been observed since 2010. However, in 2020, as a result of the COVID-19 crisis in the world economy, there was an increase of lending stock, with particular emphasis on SME registering an increase of 12.3% year-on-year of SME lending stock. Much as a result of government intervention with the adoption of measures to finance the economy, in particular the SME, to mitigate the effects resulting from COVID-19.Nevertheless, the share of SME loans in total business loans remained around 80% in the last five years.

Over the 2010-20 period, SME lending stocks declined by almost 33%, while total business loans dropped by 35.5%. The decline in SME lending was more pronounced in short-term SME loans over the 2010-20 period, having dropped by 64%. It is also evident a declining trend in the share of short-term loans in total SME loans, not considering 2020 where we observe an increase by 1.51% 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 (2016-2019) the reduction of SME lending has been largely driven by 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 23.3% in 2020 demonstrating the sustained public efforts to support SME access to finance. Total government guaranteed loans are still increasing and registered a 115.89% year-on-year growth in 2020, much as a result of the set of mitigation measures to the impacts of COVID-19 on the activities of companies and in particular of SME implemented by the Government.

Credit conditions

Over the 2009-20 period, banks significantly tightened lending conditions to companies, setting up more restrictive financing terms. SMEs were required to put up higher and better quality collateral to access bank financing. In 2009 the share of SME needing collateral to obtain bank lending was 76.25% and in 2020 that share rose to 89.88%.

As a result, among other factors, the average interest rate for SME loans decreased to 2.48% in 2020, marking the eight years 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 1.8 to 2.2 percentage points (pp) from 2009 to 2012. Since then, this spread has gradually decreased, to reach 0.78 pp in 2020, indicating an improvement in SME financing conditions, with the exception of collateral requirements, which continue to be strict in 2020.

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 414% to EUR 72 million compared to their 2011 value.

Nevertheless, the amount of venture capital invested dropped again to 18 million in 2016, a 75% decrease from 2015, but recovered in the last four 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 36.3. Equity capital invested by business stage in Portugal, 2007-2020

In EUR million

Stage	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020
Early stage	31.3	43.8	31.3	53.5	10.4	12.2	24.6	40.5	52.3	16.1	15.1	21.5	37.3	36.4
Seed	0.5	0.0	0.1	0.1	0.8	1.0	7.2	6.4	4.9	3.4	2.0	2.6	10.5	10.1
Start up	30.9	43.8	31.2	53.4	9.6	11.2	17.4	34.1	47.3	12.8	13.1	18.9	26.8	26.3
Later stage	98.0	40.1	11.0	12.2	3.3	3.7	5.8	4.9	19.5	1.6	5.1	2.5	15.1	2.7
Total	129.3	83.8	42.3	65.7	13.7	15.9	30.4	45.4	71.8	17.7	20.2	24.0	52.4	39.1

Other indicators

Payment delays, an important cause of difficulties on SME cash flow, halved from 41 days in 2011, to 12 days in 2020, which represents a sustained decline over the last ten 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 2 502 in 2020, ending this year with the historically lowest value, despite the economic crisis caused by COVID-19, this reflects the set of measures implement by the government during the COVID-19 pandemic.

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, since their creation, have already allowed SME to access bank credit worth EUR 21.6 billion, with long-term maturities (up to 7 years) and preferential conditions, partially subsidized 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 2020, and since 2008, about 245 247 projects were eligible for the “SME Invest / Growth and Capitalizar” credit lines. EUR 21.6 billion in finance were provided to about 106 238 SMEs, supporting about 1.3 million jobs.

In parallel, the Portuguese government, in the course of 2020 and the first semester of 2021, launched a set of credit lines also supported with public guarantees to mitigate the effects of the COVID-19 on SMEs. These specific credit lines have already allowed SME to access bank credit worth EUR 8.8 billion, supporting about 891 935 jobs.

As part of the global package of the “SME Invest/Growth and Capitalizar” and “Covid-19” 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 for Portugal in the scoreboard – in 2020, they represent 23%.

In order to mitigate the effects of the COVID-19 crisis on the economy, the Portuguese government launched a set of measures aimed at SMEs, of which we highlight those that have an impact on their financing:

• a set of credit lines supported with public guarantees, these credit lines aim to support the needs of working capital of SME, as result if the effects of COVID-19;

• an moratorium regime with regard to the fulfilment of obligations arising from credit agreements;

• grants program to support lost funds due to loss of billing, within the scope of the COVID-19 disease pandemic;

• direct loans;

• exceptional and temporary regime for compliance with tax obligations and social contributions, within the scope of the COVID-19 disease pandemic;

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 9 955 in 2020, despite the increasingly more demanding prerequisites. In 2020, 71.9% of the firms with status of “SME Leader” were small businesses, with more than 25% being industrial. Given their lower risk profile, they are prime targets for lending.

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 (2017-2021). 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 favourable 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 favouring financial disintermediation and direct access to investors.

Figure 36.1. 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 36.4.

Statlink

Table 36.4. 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.	Banco Português de Fomento (BPF)
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.	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 (2020), “Boletim Económico - outubro 2020”, https://www.bportugal.pt/sites/default/files/anexos/pdf-boletim/be_out2020_p.pdf

Banco de Portugal (2021), “Financial Stability Report, june 2021”,

https://www.bportugal.pt/sites/default/files/anexos/pdf-boletim/ref_06_2021_en.pdf

Banco de Portugal (2021) , “Bank Lending Survey”,

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

Statistics Portugal (2021), Empresas em Portugal 2019,

https://www.ine.pt/xportal/xmain?xpid=INE&xpgid=ine_publicacoes&PUBLICACOESpub_boui=437546392&PUBLICACOESmodo=2