Financing SMEs and Entrepreneurs 2024

13. Finland

Key facts on SME financing

The Finnish economy had seen five years of continuous growth before the COVID-19 pandemic. The COVID-19 pandemic and the uncertainty in the global economy resulted in a recession in Finland as GDP declined 2.9% in 2020. The growth rate has gradually recovered since, being 3.0% in 2021 and 2.1% in 2022.

Due to the economic downturn caused by the pandemic, the Finnish Government supported companies in 2021 with EUR one billion in direct support (grants), a loan scheme of EUR 258 million and a guarantee scheme of EUR 301 million. Of all direct support paid due to the COVID-19 pandemic, 71% went to service sectors. By size category, EUR 297 million of support was paid to micro-enterprises, EUR 524 million to small enterprises, EUR 138 million to medium-sized enterprises and EUR 41 million to large enterprises. A total of 37,921 companies received some type of support due to the pandemic in the year 2021.

A total of 57,970 companies received COVID-19 subsidies in 2020 and 2021, to which EUR 2,278.9 million were paid, i.e. approximately 39,300 euros per recipient. There were a total of 59,016 companies that received some kind of COVID-19 support in 2020 and 2021 (including loans and guarantees). If we add to this figure the non-employers, the number of companies that received some kind of COVID-19 support comes to about 106,100 companies.

For the first months of 2022, the outlook for SMEs had clearly improved after the pandemic, and economic expectations rose strongly. However, the situation changed rapidly as, following Russia's invasion of Ukraine, the prospects for investment and private consumption weakened due to prolonged and accelerated price increases, decreases in foreign trade, and increased uncertainty. The exceptional situation is directly reflected in the outlook for small and medium-sized enterprises for short-term economic development. As a result, expectations fell sharply.

SMEs are expected to significantly reduce their investments in the near future. With the exception of manufacturing, in all main industries, there is a larger share of companies reducing rather than increasing their investments. The weak development of investment expectations is linked to the exceptionally high uncertainty about the continuation of the war, the rise in interest rates and the rate of economic growth. Even though GDP growth was 2.1% in 2022, the growth rate was 3.0% in 2021.

The outstanding business loans reached a record-high level in 2022 (in total EUR 100 billion). The new business lending was also a record-high, totaling EUR 45 billion. The volume of new lending to SMEs, however, decreased in 2022 in comparison to the years 2016 – 2020. The SMEs received around EUR 8 billion in new loans in year 2022 (the figure was EUR 9.8 billion in 2020 and EUR 8.1 billion in 2021). The share of new SME lending was 17.9%, the lowest level since year 2010 (15.6%).

The average interest rate for SMEs was 3.17% in 2022 (2.02% in 2020). The average interest rate charged from large companies was instead 1.88% in 2022, in comparison to 1.19% in 2021. The interest rate for large companies was at higher level last time in 2014 (1.96%). The credit spread between small and large business loans indicates a tightening of credit terms for SMEs compared to large enterprises. The interest rate spread was 1.29% in 2022, 0,94% in 2021 while it was 0.66% in 2020.

The structure of corporate finance is changing very slowly. Bank-centricity is still common in the financing of SMEs, although it has decreased. Public actors like Business Finland and ELY centers have maintained their position as the most important options for bank loans together with Finnvera. Especially, growth-oriented companies applied for funding from Business Finland and venture capitalists (SME-barometer 2/20221).

Average B2B payment delays surged to 17 days in 2020. There was a significant increase in payment delays following the COVID-19 pandemic and during the economic downturn in Finland. Since the harsh first COVID year of 2020 the situation has improved significantly, with payment delays falling to 10 days in 2022. However, payment periods are still twice as long as they were in 2015 -2018.

The number of bankruptcies decreased markedly by 19% in 2020 from the previous year. A part of the decline is explained by the temporary amendment of the bankruptcy law (May 1st, 2020), which prevented bankruptcies of those enterprises whose financial difficulties would most likely be temporary due to the COVID-19 pandemic restrictions. In 2022, the number of bankruptcies has returned back to the pre- COVID-19-19 pandemic level, totalling 2 666.

Finnish startups have once again raised a record amount of funding. The amount invested increased by almost half a billion from the previous year, totaling EUR 1.8 billion in 2022. The amount of funding raised by Finnish startups has increased tenfold in the last ten years. There has been especially great leaps in the last four years, and the long-term development has also been positive.

Table 13.1.  Scoreboard for Finland

Indicator		Unit	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020	2021	2022
		Debt
Outstanding business loans, total		EUR billion	48.4	57.6	54.1	56.5	60.4	63.3	66.7	68.4	72.5	76.0	79.3	85.3	91.0	96.9	94.1	100.1
New business lending, total		EUR billion	42.7	54.4	50.9	54.4	37.4	34.9	39.5	35.5	34.6	35.9	36.4	35.2	35.6	41.4	40.3	45.2
New business lending, SMEs		EUR billion	11.6	11.9	9.9	8.3	7.9	7.7	7.3	6.7	8.1	8.6	8.9	9.1	8.7	9.7	8.08	8.09
Share of new SME lending		% of total new lending	27.11	21.85	19.56	15.25	21.11	22.23	18.55	18.99	23.37	23.87	24.54	25.85	24.39	23.63	20.06	17.9
Short-term loans, SMEs		EUR million	..	..	..	839	1615	1613	1312	1149	1301	1361	1374	1359	1124	1414	1117	1383
Long-term loans, SMEs		EUR million	..	..	..	3 314	6 287	6136	6018	5583	6789	7219	7561	7747	7566	8249	6971	6710
Share of short-term SME lending		% of total SME lending	..	..	..	20.20	20.44	20.82	17.90	17.07	16.08	15.86	15.38	14.92	12.93	14.63	13.81	17.09
Government loan guarantees, SMEs		EUR million	389	414	426	393	450	383	351	440	496	563	535	549	598	1100	839	702
Direct government loans, SMEs		EUR million	371	453	521	378	358	283	274	283	351	259	224	194	183	105	148	119
Non-performing loans, total		% of all business loans	..	..	..	..	..	..	..	..	1.96	1.47	1.27	3.72	3.75	3.91	2.08	1.79
Non-performing loans, total (amount)		EUR million	..	..	..	..	..	..	..	..	1 423	1 119	994	3 170	3416	3785	1955	1788
Interest rate, SMEs		%	5.39	5.58	3.02	2.66	3.23	2.86	2.81	2.74	2.39	2.23	2.14	2.21	2.13	2.02	2.13	3.17
Interest rate, large firms		%	4.83	5.08	2.24	1.93	2.59	2.07	1.91	1.92	1.46	1.33	1.35	1.24	1.33	1.33	1.19	1.88
Interest rate spread		% points	0.56	0.50	0.78	0.73	0.64	0.79	0.90	0.82	0.93	0.90	0.79	0.97	0.80	0.66	0.94	1.29
Collateral, SMEs		% of SMEs needing collateral to obtain bank lending	..	..	..	33	34	36	42	41	38	36	33	31	30	30	37	41
Percentage of SME loan applications		SME loan applications/ total number of SMEs	..	..	13.85	18.42	20.79	21.50	21.85	27.70	21.97	23.89	19.99	20.35	21.31	18.96	20.75	18.7
Rejection rate		1-(SME loans authorised/ requested)	..	..	6.98	4.92	3.12	8.08	7.06	6.71	6.24	5.59	6.76	4.15	6.11	8.74	7.77	8.46
		Non-bank finance
Venture and growth capital		EUR million	189	218	146	351	148	185	173	168	190	219	203	338	678	714	1034	1186
Venture and growth capital (growth rate)		%, year-on-year growth rate	..	15.34	-33.0	140.4	-57.8	25.0	-6.49	-2.89	13.10	15.26	-7.31	66.50	70.35	5.31	44.82	14.7
Leasing and hire purchases		EUR million	..	..	1 067	1 361	1 658	1 765	1 658	1 858	..	..	..	..	..	..	..	..
		Other indicators
Payment delays, B2B		Number of days	6	5	7	7	7	7	6	6	5	5	5	5	2	17	11	10
Bankruptcies, SMEs		Number	2 254	2 612	3 275	2 864	2 947	2 961	3 131	2 986	2 574	2 408	2 168	2 546	2623	2135	2473	2656
Bankruptcies, SMEs (growth rate)		%, year-on-year growth rate	..	15.9	25.4	-12.5	2.9	0.5	5.7	-4.6	-13.8	-6.4	-9.97	17.44	3.02	-18.6	15.8	7.39

Source: See Table 13.2.

Macroeconomic and financing conditions

The Finnish economy is in mild recession in 2023. Finland’s gross domestic product (GDP) will contract by 0.2% in 2023. Next year, the economy will slowly start to recover from the recession. Growth in the economy will gather pace in 2025, but only to 1.4%. 

Employment has grown for a long time, but is now showing a slight dip while the economy is in recession. In 2024, the employment rate for the 20 to 64 age group will fall to 77.7%. The number of people employed will continue to grow in 2025 as economic growth strengthens, returning the employment rate close to its 2022 level. According to the forecast, inflation will slow to 1% in 2024, but the prices of services will continue to rise at a faster pace than previously. 

There are risks surrounding the forecast. Geopolitical confrontation and the rise in interest rates could adversely affect growth. Slower growth in the global economy would further decrease Finnish companies’ export opportunities. Higher interest rates may also curb investment and affect real estate market activity. The outlook for residential construction has quickly weakened due to the rapid cooling of the housing market, and it is possible that the sector’s difficulties could affect employment and the economy more strongly than projected (Bank of Finland, 2023[1]).

The Finnish financial system has remained stable despite the spring (2023) turbulence in the international financial markets. However, the rapid and steep rise in interest rates has led to an increase in financial stability risks in Finland as well. The increase in loan servicing costs is a strain on households, housing companies, residential property investors and businesses. The credit and liquidity risks of banks are also expected to increase.

Finland’s banking sector is concentrated, reliant on financing from international financial markets, and sensitive to serious disruptions in the domestic and Nordic housing and real estate markets. Finland’s financial system is well placed to withstand the elevated risks associated with higher interest rates and tighter financing conditions, provided that the economy and the housing market develop in line with forecasts.

The good profitability and capital position of the country’s banks are protecting them from an increase in the risks associated with funding, liquidity and customer creditworthiness. Stress tests confirm that Finnish banks and insurance companies would be able to withstand losses arising if the economy and financial markets perform considerably below expectations.

Box 13.1. Effects of Russia’s large-scale aggression against Ukraine

Russia's aggression against Ukraine in February 2022 has quickly increased the uncertainty related to the economic outlook and financial conditions. The war affected the business environment of Finnish companies in several ways. The overall effects extend beyond just those companies that have direct Russian risks in their business. A weakening economic environment, accelerating inflation and tighter financial conditions can increase companies' risks. The most vulnerable are energy-intensive companies connected to Russia through their value chains, as well as companies in industries already weakened by the pandemic.

The war in Ukraine affects SMEs in very different ways. Almost half of the companies report that Russia's aggression against Ukraine had a negative impact on their business or production. At the same time, however, an almost equal share of companies reported that the war has had no effect. In addition, approximately three percent of SMEs consider that the war in Ukraine had a positive effect on the company's business or production.

Russia's attack on Ukraine affects different industries and companies in very different ways. The negative effects have been most strongly reflected in the increase in production costs and the decrease in demand. The most worrying thing is that Russia's attack on Ukraine is putting the brakes on the already small investments. However, at least so far, the war has not led to a significant need to adapt personnel.

It is clear that the effects of war are still associated with uncertainty, and uncertainty is poison for the economy. It slows down both investments and consumption in Finland. Among the uncertainty factors, at least the magnitude and duration of the increase in the prices of energy and raw materials are central.

Source: SME barometer 2/2022

SMEs in the national economy

In 2021, about 99.1% of all employer firms are SMEs in Finland (71.950 companies), employing 61% of the labour force. The SME share in employment goes up to 64% if non-employers are also included in the count. The vast majority of SMEs (74.6%) are micro-enterprises with less than 10 employees (2-9). The decrease in the number of all employer firms compared with earlier year was significant. In 2021, there were approximately 11.300 employer firms (incl. large) less than a year (Statistics Finland, 2023).

Table 13.2. Distribution of firms in Finland, 2021

By firm size

Firm size (employees)	Number	%
SMEs (2-249)	71 950	99.1 %
Micro (2-9)	53 652	74.6 %
Small (10-49)	15 342	21.3 %
Medium (50-249)	2 956	4.1 %
All firms	72 610	100.0 %

Source: Statistics Finland (Structural business and financial statement statistics). Data includes all industries (excluding primary production sectors) and excluded firms with 1.4 employees.

Changes in statistics 1: The group of statistical units in the structural business and financial statement statistics have been expanded starting from the statistical reference year 2021. The expansion of statistical units has been carried out as part of the implementation of the new EU Regulation on European Business Statistics (EBS).

Changes in statistics 2: Starting from the statistical reference year 2021, the data on the number of personnel has been calculated with a new method, causing a break in the time series between 2020 and 2021. The renewal decreases the number of personnel by around 136 000 persons (9.0 %).

Based on the latest business statistics, there were approximately 431 000 companies in Finland (including non-employers and not including land, forests, fisheries industries) in 2021. There was a sharp increase in the total number of Finnish companies due to the methodological change in statistics (expansion of statistical units, Regulation on European Business Statistics). As a result, a large number of small companies were included in the business statistics for the first time. After implementing the Regulation, the total number of Finnish companies increased approximately by 43% (not including agriculture, forests, fisheries industries). Micro-enterprises employing less than ten people (1-9) share of the entire business base was about 87% in 2021. The share remained largely unchanged compared to the year before. Of all SMEs, (i.e. companies with less than 250 people), the share of companies employing a person was 34%. The share dropped significantly due to statistical change (Statistics Finland, 2023[2])

In 2021, turnover of Finnish companies accumulated EUR 466 billion (not including land, forests, fisheries industries). There was a sharp increase of EUR 41 billion compared to 2020. Share of the SME sector was 58.7% of the turnover of all Finnish companies in 2021 (including land, forest, fisheries industries and non-employers) (Statistics Finland, 2023[2]).

SME lending

The volume of new lending to SMEs decreased in 2022 in comparison to the years 2016 - 2020. The volume of new lending for SMEs was record-high in year 2020 (EUR 9.6 billion) because of the COVID-19 economic support measures. In 2022 SMEs received new loans totalling around EUR 8 billion (EUR 8.1 billion in 2021). The share of new SME lending was 17.9%, being at the lowest level since year 2010 (15.6%).

Total new business lending was at the highest level in 2022 totalling EUR 45 billion. The total amount was 12% higher than in year 2021, and almost 30% higher than the average for the period 2011-2019. New SME lending has, however, decreased by more than 10% compared to the pre- COVID-19 period (years 2017-2019).

The share of short-term loans in SME lending in 2022 has reached the highest level (17.1%) since the year 2014. The level of outstanding short-term loans for SMEs has recovered at the level of EUR 1.4 billion in 2022, in comparison to the record lowest level of EUR 1.1 billion in year 2021. The level of outstanding long-term loans for SMEs in 2022 was EUR 6.7 billion, the lowest level since 2014 (EUR 5.6 billion).

The volume of direct government loans to SMEs has decreased yearly since 2015 from EUR 351 million to EUR 119 million in 2022. It should be noted, on the other hand, that the share of guarantees in Finnvera's financing has increased. Moreover, the introduction of EU guarantee programmes targeted at SMEs has increased the availability of SME loans intermediated by banks and reduced the demand for loans provided by Finnvera.

In addition to the financing granted to SME’s, in 2021 and 2022 Finnvera granted working capital loans to large companies (over 249 employees) within the framework of the European Investment Bank’s (EIB) Pan-European Guarantee Fund (EGF). During the 2-year guarantee programme Finnvera granted loans totalling EUR 301 million to large companies.

Credit conditions

According to SME-barometer in the second half of 2022, even at the beginning of the year, the outlook for SMEs had clearly improved after the exceptional pandemic period, and business cycle expectations had risen strongly. The situation changed as, following Russia's invasion of Ukraine, the prospects for investment and private consumption weakened due to prolonged and accelerated price increases, decreases in foreign trade, and increased uncertainty. The exceptional situation is directly reflected in the outlook for small and medium-sized enterprises for short-term economic development. As a result, expectations fell sharply.

The average interest rate on small loans of up to EUR 1 million, which is used as an interest rate proxy for loans to SMEs, has been decreasing from 2011 to 2020. In 2022, the average interest rate for SMEs increased to the highest level of 3.17% (2.01% in 2020). The average interest rate charged to large companies was 1.88% in 2022 in comparison to 1.19% in 2021. The interest rate for large companies were at a higher level earlier in 2014 (1.96%). The credit spread between small and large business loans indicates a tightening of credit terms for SMEs compared to large enterprises. The interest rate spread was 1.29% in 2022, while it was 0.66% in 2020.

According to SME-barometer (2/2022), Finnvera's role as an alternative and supplement to bank loans has remained unchanged: a fifth of those SMEs planning to apply for financing say they will turn to Finnvera. 27% of SMEs applied for bank financing said that the availability of financing required Finnvera's guarantee. This share was the highest in companies with a strong desire for growth. Also, more than 35% of companies with 10–19 employees who applied for bank support considered that Finnvera's guarantee was a prerequisite for obtaining financing.

The results of the SME-barometer (2/2022) show that business financing, which was gradually diversifying in the course of recent years, experienced a setback. Entrepreneurs seem to have to resort to bank financial services more often than before. This is not an ideal course of events, because the availability of traditional banking services for companies threatens to become more difficult in the future. There is a need in Finland to enable new forms of financing for SMEs.

What is challenging about the situation is that among new financing sources, only the instant loan companies increased their popularity. Three percent of SMEs have used them. Although the change is not significant, it speaks harshly about the diversification of financing sources for SMEs. Although it is clear that there is a need for financing offered by payday loan companies in certain groups of companies, the terms of the financing they offer are very diverse, and some have very high interest rates. In the business loans of instant credit companies, the interest rate is not limited in the same way as in the financing provided to consumers.

Over two-thirds of Finnish firms (69%) received bank finance in the last financial year (interviews were conducted April - July 2022), a share that is well below the EU average (82%). About 6% of Finnish firms using external finance received bank finance on concessional terms. This is considerably less than for the EU average, where 32% of firms using external finance received bank finance on concessional terms. At least 74% of firms in each sector accessed bank finance, except for firms in the manufacturing sector (57%). A greater share of Finland’s SMEs compared to large firms, received external finance from a bank (75% versus 55%) (EIB, 2022[3]).

Overall access to finance was not the most pressing problem for Finnish SMEs before the COVID-19 pandemic. The situation has remained the same in 2022. According to SME-barometer in the second half of 2022, the current economic conditions were by far the most frequently mentioned barrier to SMEs’ development. Access to finance appears to be the most pressing problem for just 6% of SMEs. The share of rejected loan applications was about 6% in Finland in 2019, but it increased at the level of 8.93% in 2020. In 2022, the rejection rate was 8.46%.

Alternative sources of SME financing

According to the Finnish Venture Capital Association (FVCA), a record-high figure of EUR 1.79 billion was invested in start-ups and early-stage growth companies in Finland in 2022. The amount of funding raised by Finnish startups has increased tenfold in the last ten years. Of the total sum, foreign investments accounted for EUR 1.35 billion. Finnish Venture Capital (VC) and growth funds invested EUR 280 million, and Finnish business angels invested EUR 37 million. New venture capital fund managers have emerged, and new funds in the seed and start-up stages have been established in recent years.

Startups raise funding from several different types of investors. As in previous years, most of the funding came from venture capital and growth investors, who invested over one billion euros in Finnish startups in 2022. There has been a significant increase (17%) from the previous year’s sum of EUR 886 million. Of the amount invested in 2022, EUR 280 million came from domestic and EUR 753 million from foreign VCs and growth investors. Other foreign investors, such as corporates and LPs, invested a significant amount of EUR 597 million in Finnish startups. Other domestic investors invested a total of EUR 160 million.

Table 13.3. Start-up financing in years 2013-2022 (EUR million)

	2013	2014	2015	2016	2017	2018	2019	2020	2021	2022
Crowdfunding and accelerators	15	13	27	42	63	58	58	74	70	70
Finnish business angels	24	33	37	53	26	36	54	36	52	37
Other Finnish investments (e.g. corporations)
Finnish venture capital	87	74	88	81	75	107	117	199	176	238
Finnish VC-growth
Foreign venture capital	40	50	21	51	66	123	173	238	252	246
Foreign VC-growth									409	507
Other foreign investments (e.g. corporations)	19	39	73	105	142	188	115	271	302	597
Total	186	209	246	332	372	511	517	918	1360	1790

Source: Finnish Venture Capital Association (FVCA)According to Invest Europe, Finland received most Venture Capital investments per GDP between 2018 and 2022. In 2022, Finnish companies were also number one in Europe for Growth Capital Investments per GDP.

The average seed and start-up investment from VC investors were EUR 1.0 million and EUR 1.7 million, respectively, and the average later-stage investment was EUR 9.5 million in 2022, according to the FVCA statistics. The average investment amount has been on the increase in recent years. Foreign investors have been increasingly turning to Finnish growth companies and private equity funds, which may facilitate a rise in the availability of growth funding in the long run.

Table 13.4. Venture and growth capital investment in Finland

By stage of investment, in millions of EUR

Stage	2013	2014	2015	2016	2017	2018	2019	2020	2021	2022
Seed	3	7	10	16	14	15	25	27	60	116
Start-up	65	64	67	66	65	88	76	111	171	149
Later stage	35	30	27	34	20	42	57	124	120	162
Total venture	103	101	104	116	99	145	158	262	351	427
Growth	45	44	91	102	77	168	388	276	605	702

Note: Total excludes buyout, turnaround and replacement capital: In years 2021-2022, the statistics (later stage) include growth investments in start-ups (“VC-growth”) to give a more complete picture of the Finnish start-up ecosystem’s development

Source: Finnish Venture Capital Association.

Box 13.2. Diversity study - The boards of Finnish private equity-backed companies

In 2021, women accounted for 11% of the board seats in private equity-backed companies, which is one percentage-point more than in 2020 but the same as in 2019. There are clear gender differences of board composition between different investment classes with venture capital having the lowest share (6%), whereas at buyout-backed and growth companies, 13% and 14% of the board seats were held by women, respectively. These figures are similar to previous years, with women having 8% of board seats in venture capital-backed firms in 2019 and 2020 and 13% and 14% in buyout-backed firms.

The slight decline in female board members in venture capital firms is due to growth investment not being reported as a separate category in previous year’s reports but instead being included in the two other categories (mostly in venture capital). Growth firms are typically larger and more mature firms and tend to have more women on boards than venture capital portfolios. There are also clear differences between industries, in the share of women’s share of board seats. Among growth and buyout-backed firms, women are most represented on the boards of consumer goods and retail (21%) and consumer services and life sciences firms (both at 14%). The lowest shares are in technologies (8%) and business and industrial products (7%).

Source: Finnish Venture Capital Association (FVCA)

In 2022, the volume of funding mediated to consumers and non-financial corporations on peer-to-peer (P2P) and crowdfunding platforms covered by Finnish statistics amounted to EUR 230.4 million. This was the lowest volume in the history of the statistics (2017–2022). The volume of P2P lending and loan-based crowdfunding decreased significantly from 2021. The volume of loan-based crowdfunding mediated to Finnish non-financial corporations amounted to EUR 126.4 million in 2022. This is approximately 34% less than in the peak year 2021. The volume in 2022 was close to the EUR 125.2 million mediated on average in 2017-2022.

At the same time, the number of projects funded has risen considerably. The number of successfully completed funding projects in 2022 was over 26,100, as opposed to a good 17,200 in 2021. The average loan size in loan-based crowdfunding decreased clearly from 2021. The average effective interest rate of loans mediated rose slightly from a year earlier (9.0%) to 10.6%. The average maturity of the loans increased from 2021 by about 5 months, to stand at 18 months in 2022 (Bank of Finland, 2023[4]).

Other indicators

Finnish businesses considered the rising inflation to be the most prevalent challenge impacting the customer’s ability to pay on time. Although the year 2022 has been more challenging than anticipated for many SMEs, the number of companies in payment difficulties increased moderately during the beginning of the year. This time, 15% of companies reported difficulties handling their payments during the last three months. The share has risen from the spring 2022 SME barometer by two percentage points and is at the same level as in Autumn 2021. The share of companies experiencing payment difficulties is still reasonably large, but taking into account the effects of the pandemic and the war in Ukraine, the number of payment difficulties can be considered reasonable. (SME barometer 2/2022).

Average B2B payment delays surged to 17 days in 2020. There was a significant increase in payment delays following the COVID-19 pandemic and during the economic downturn in Finland. Since the harsh first COVID year 2020 the situation has improved significantly with payment periods being 10 days in 2022 (down from 11 days in 2021). Delays are still twice as long as they were in the 2015 -2018 period.

Finnish businesses have been among the fastest in Europe to pay their invoices before COVID-19 pandemic, according to the statistics collected by Intrum for the European Payment Report 2018 and 2019. In 2022, the 10 days gap (offered term vs. actual) in payments was the lowest among European countries.

The number of bankruptcies decreased markedly by 19% in 2020 from 2019. In 2020, the number of bankruptcies was 2135. A part of the decline is explained by a temporary amendment of the bankruptcy law (May 1st 2020), which prevented bankruptcies of those enterprises whose financial difficulties would most likely be temporary due to the COVID-19 pandemic restrictions. In 2022, the number of bankruptcies has returned back to the pre-COVID-19 pandemic level, totalling 2 666. In January-March 2023, the number of bankrupted companies was 687, which is 31.4% more than the same time last year (523). Looking at bankruptcies filed over the past 12 months, the total number of bankruptcies has increased by 21% from the previous 12-month period.

Government policy response

There are five financing companies owned by the Government of Finland providing financing to start-ups and SMEs. While Finnvera Plc and Business Finland provide unsecured loans, guarantees and grants, both Finnish Industry Investment Ltd and Business Finland Venture Capital Ltd operate in venture capital (incl. private equity) markets. The Climate Fund has a specific focus on combating climate change, boosting the low-carbon industry and promoting digitalisation. The Climate Fund provides equity, debt and mezzanine funding.

At the end of 2022, Finnvera had 24 400 customers, of which 86% were micro-enterprises, 13% were SMEs and midcap enterprises, and 1% were large corporates. The Parliament of Finland raised Finnvera’s domestic credit and guarantee authorisation from the maximum of EUR 4.2 billion to EUR 12 billion by an amendment in May 2020. This constituted a significant boost to Finnvera’s opportunities to grant COVID-19 financing. Finnvera gave a signal to markets that guarantees and loans are available when needed. In 2020, the State temporarily raised the credit and guarantee loss compensation paid to Finnvera from 50% to 80%. As of 1 January 2023, the loss compensation was reduced back to 50%, Finnvera has shifted its focus to guarantees as loan stock has decreased in the past few years. In 2022, Finnvera granted EUR 702 million in guarantees to SMEs.

Table 13.5. SME loans and guarantees grantes by Finnvera in Finland

EUR million

	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020	2021	2022
Loans	371	453	521	378	358	330	274	283	351	259	224	193	183	105	148	119
Guarantees	389	414	426	393	450	383	351	440	496	563	535	549	598	1100	839	702
Subtotal	760	867	947	772	808	713	625	723	847	822	759	743	781	1205	987	821
Export guarantees	92	120	85	57	97	95	87	145	117	110	110	117	127	167	149	122
Total	852	987	1031	828	906	808	712	868	963	932	869	859	908	1372	1135	942

Source: Finnvera, Annual Reports 2007 - 2022.Finnvera introduced the European Investment Bank's (EIB) Pan-European Guarantee Fund (EGF) programme in April 2021, and it continued until the end of 2022. Under the programme Finnvera provided loans over EUR 300 million to Finnish for large and medium-sized enterprises with a 75% EIB guarantee. Finnvera also served as an implementing partner in the Alternative Fuels Infrastructure Facility (AFIF) as part of the CEF programme by the European Commission.

During 2022, Finnvera has also continued as an intermediary for the European Investment Fund’s (EIF) COSME LGF counter guarantee scheme under its SME guarantee product. In 2022, the COVID-19 sub‑portfolio of the program expired. In total, the COSME LGF programme has a capped guarantee of 575 million EUR from the EIF.

Finnish Industry Investment Ltd’s (Tesi) mission is to promote the growth and internationalisation of Finnish companies (mostly SMEs), and to develop Finland’s VC & PE market. Tesi’s objective is to increase the supply of private capital by offering financing that supplements it. Tesi co-invests, hand-in-hand with private investors (pari passu), in venture capital and private equity funds and also directly in portfolio companies. Tesi made investments totalling EUR 297 million in 2022 (207 in 2021). This figure includes fund commitments, direct investments, and also pandemic-era Stabilisation and Venture Bridge financing.

The Stabilisation and Venture Bridge programmes, as temporary special investment programmes to mitigate impacts of the pandemic, differ from Tesi’s normal investment activities. All in Tesi made market‑rated “COVID investment” by the end of 2022 in total EUR 269 million to 63 companies.

In addition, Tesi manages KRR funds-of-funds (“growth fund of funds”), in which both Tesi and Finnish insurance and pension companies invest. KRR funds invest in venture capital and growth funds operating in Finland that invest in Finnish growth companies. Since the launch of the first KRR fund more than ten years ago, the programme has played an important role in encouraging large pension funds to get familiar with and invest in Finnish VC and growth funds. All in all KRR funds of funds (I-IV) have invested to 44 funds in total EUR 528 million by the end of 2022. The share of total funding from private operators has been around 55% on average. The next KRR V will continue the successful investment activities of its predecessors. The target size of KRR V is EUR 200 million. It aims to invest in 12 - 16 Finnish venture capital and growth funds during 2023-2027.

Business Finland Venture Capital Ltd (BFVC) acts as an anchor investor in venture capital funds that support companies in their early stages of development. The purpose of this initiative is to foster and develop Finland's early venture capital market. The programme has been highly effective in encouraging diverse groups of investors to participate in fundraising for first-time VC funds. BFVC’s due diligence work has earned significant appreciation from co-investors involved in the funds. The due diligence process focuses on verifying the team's expertise and backgrounds, evaluating the feasibility of the fund's investment strategy, and ensuring that fund agreements are in accordance with market practices. By the end of 2022, Business Finland Venture Capital Ltd has invested in 14 funds that have collected funds in total amount of EUR 220 million. BFVC programmes are bridging the funding gaps by investing in private sector funds.

BFVC has also committed EUR 15 million to the EAF Finland angel fund. EAF Finland co-invests with selected experienced Business Angels into innovative Finnish early-stage SMEs with the EIF acting as an additional investor and advisor. The fund's size is EUR 30 million. The fund is aimed at experienced business angels, in support of their investments in innovative startup SMEs.

The Finnish Climate Fund is a Finnish state-owned special-assignment company focusing on combating climate change, boosting the low-carbon industry and promoting digitalisation related to these themes. The primary investment targets of the Climate Fund include industrial scale-ups of new technology demonstration projects, pre-existing climate solutions into a commercial scale, and other solutions. The Climate Fund can also fund the development and commercialisation of a new digital climate solution, a feature that enables emissions reductions, or a data platform. Using mainly sub-ordinated debt instruments, individual funding decisions typically vary between EUR 4 and 40 million. The annual financing volume is estimated to be around EUR 130 million.

In 2022, Climate Fund’s funding decisions were made for EUR 79.9 million (target EUR 80 million) and in 2021 for EUR 45.5 million (target EUR 50 million). As of June 2023, the total portfolio value is EUR 151.4 million, and the portfolio companies have a 10-year cumulative emissions reduction potential of up to 287 Mt CO2-eq if the business plans are realised in full.

Business Finland granted EUR 826 million to companies and research organizations for RDI projects. The innovation funding for the SME projects is EUR 271 million in 2022 (EUR 182 million in 2021). In 2022, EUR 155 million was granted to innovative start-ups. Young Innovative Company funding is intended for startups with high business potential and that have been in operation for less than five years. Funding enables the company to invest in the growth of international business and, in addition, strengthen the team, develop its business model and growth strategy, and target new markets. The advisory services consist of for instance expert views on your business and growth strategy and, coaching and practical feedback on development plans and targets. Since 2008, a total of 495 (4/2022) Finnish startups have been selected to the Young Innovative Company funding programme.

Figure 13.1. Trends in SME and entrepreneurship finance in Finland

Source: See Table 13.2.

Statlink

Table 13.6. Sources and definitions of Finland Scoreboard

Indicator	Definition	Source
Debt
Outstanding business loans, total	All business loans, including all firms and housing corporations	Bank of Finland
New business lending, total	All new business loans; including renegotiated loans and loans to housing corporations. Excludes lines of credit, overdrafts and business credit cards, includes loans to non-employer firms and housing corporations.	Bank of Finland
New business lending, SMEs	New business Loans up to EUR 1 million; including renegotiated loans and loans to housing corporations. Excludes lines of credit, overdrafts and business credit cards, includes loans to non-employer firms and housing corporations.	Bank of Finland
Short-term loans, SMEs	New business loans up to EUR 1 million and up to 1 year	Bank of Finland
Long-term loans, SMEs	New business loans up to EUR 1 million and over 1 year	Bank of Finland
Government loan guarantees, SMEs	Value of guarantees granted to SMEs (defined as firms with less than 250 employees) by Finnvera	Finnvera
Direct government loans, SMEs	Loans granted to SMEs (defined as firms with less than 250 employees) by Finnvera	Finnvera
Non-performing loans, total	Non-performing business loans include: not past due exposures, debtor unlikely to pay and exposures past due by less than 90 days, debtor unlikely to pay.	The Financial Supervisory Authority
Interest rate, SMEs	Average interest rates for SMEs (defined as loans up to EUR 1 million), initial rate fixation of up to and over one year, base rate plus risk premium	Bank of Finland
Interest rate, large firms	Average interest rates on loans over EUR 1 million, initial rate fixation of up to and over one year, base rate plus risk premium	Bank of Finland
Collateral, SMEs	Percentage of loans up to EUR 1 million secured by collaterals, including all firms and housing corporations	Bank of Finland
Percentage of SME loan applications	ECB, Statistical Data Warehouse, "SAFE" Survey, SMEs, question 7A, Financing applied, Bank loan - "Applied" - Including not applicable responses - Weighted percentage of responses; ECB,SAFE.H.at.SME.A.0.0.0.Q7A.FBLN.R1.AL.WP	ECB/European Commission, Survey on the Access to Finance
Rejection rate	Percentage of SMEs which applied bank loans but were rejected	EC and ECB http://ec.europa.eu/growth/access-to-finance/data-surveys/
Non-bank finance
Venture and growth capital	Invested capital: seed, start-up and other early stage investments made in Finnish enterprises by private investment companies	Finnish Venture Capital Association
Leasing and hire purchases	Financial leasing acquisitions	Statistics Finland
Other indicators
Payment delays, B2B	Average of days for business-to-business. All enterprises.	Intrum Justitia, European Payment Report
Bankruptcies, SMEs	Number of firms which are in bankruptcy proceedings. All enterprises.	Statistics Finland

References

[4] Bank of Finland (2023), .

[1] Bank of Finland (2023), Economic Recovery will be delayed, https://www.bofbulletin.fi/en/2023/articles/economic-recovery-will-be-delayed/.

[3] EIB (2022), EIB Investment Survey.

[2] Statistics Finland (2023), Structural business and financial statement statistics.

Note

← 1.  The SME Barometer is published twice a year by the Federation of Finnish Enterprises, Finnvera and the Ministry of Economic Affairs and Employment.