Financing SMEs and Entrepreneurs 2022

11. Denmark

Key facts on SME financing

In 2019, not counting non-employer enterprises, SMEs accounted for 98.7% of all enterprises and 39.1% of all full-time employees in Denmark.

Lending to SMEs from financial institutions declined from DKK 68 billion to 56 billion between 2019 and 2020. The 2020 level was, however, higher than in the years 2016-2018. The share of new SME lending compared to total new lending was 11.03% in 2020, slightly below the average of 11.68% in the period 2010-2020.

Survey data illustrates that credit conditions concerning corporate lending from banks to SMEs in Denmark almost consistently tightened between 2018 and 2021, after having relaxed between 2014 and 2018. In addition, the demand for new loans by new SME customers increased substantially between the first quarter of 2020 and the first quarter of 2021, while the demand by existing SME customers was stable.

Interest rates for SMEs as well as for large firms have steadily declined since 2008, but the interest rates for SMEs increased slightly in 2020, from 1.85% to 1.93%, resulting in a widening interest rate spread. However, with the exception of 2019, the 2020 interest rate spread of 0.90% is the lowest since 2007.

Venture and growth capital financing from Danish private equity firms decreased in 2019 and 2020, after reaching a record high of EUR 699 million in 2018. However, particularly the level of venture investments remained high in historical comparison despite the effects of COVID-19 in 2020.

Due to the effects of the COVID-19 pandemic, the average payment delays increased dramatically to 20 days in 2020, after having been at an all-time low of 2 days in 2017 and 3 days in 2018 and 2019. However, as a result of the extensive government support measures, the number of bankruptcies among SMEs decreased from 2 153 in 2019 to 1 841 in 2020.

The COVID-19 support measures have, among other things, included loan and guarantee schemes targeting SMEs. The loan schemes have allowed Vækstfonden (The Danish Growth Fund) to match the investments of professional investors with a loan of three times the amount of the investment. The guarantee schemes have allowed Vækstfonden and EKF (Denmark's Export Credit Agency) to cover 90% of the risk on new loans from commercial banks to SMEs.

In 2020, government loan guarantees increased from DKK 512 million to 1 948 million, and government guaranteed loans increased from DKK 1 246 million to 2 934 million.

Table 11.1. Scoreboard for Denmark

Indicator	Unit	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020
Debt
Outstanding business loans, total	DKK billion	732	809	814	812	809	830	860	914	940	989	1 033	1 080	1 126	1 168
New business lending, total	DKK billion	332	385	318	313	292	241	303	474	519	508	521	570	597	507
New business lending, SMEs	DKK billion	41	35	28	35	34	39	37	55	73	51	52	49	68	56
Share of new SME lending	% of total new lending	12.29	9.15	8.96	11.21	11.70	16.25	12.07	11.51	14.10	10.12	10.08	8.60	11.36	11.03
New short-term loans, SMEs	DKK billion	26	26	22	23	24	20	22	34	35	31	29	27	24	26
New long-term loans, SMEs	DKK billion	14	9	6	23	10	19	15	21	38	21	23	22	44	30
Share of short-term SME lending	% of total SME lending	64.70	74.57	78.79	50.00	70.53	51.49	60.25	62.38	48.48	60.00	55.63	55.09	35.66	46.04
Government loan guarantees, SMEs	DKK million	210	178	209	769	1 192	1 222	783	658	668	620	514	529	512	1 948
Government guaranteed loans, SMEs	DKK million	..	..	..	..	17	61	286	746	1 076	1 257	1 377	1 225	1 246	2 934
Interest rate, SMEs	%	5.97	6.59	5.33	4.39	4.38	3.91	3.78	3.44	2.99	2.74	2.36	2.27	1.85	1.93
Interest rate, large firms	%	5.23	5.68	3.63	2.49	2.40	2.14	1.73	1.65	1.53	1.34	1.23	0.98	1.07	1.03
Interest rate spread	% points	0.75	0.91	1.70	1.90	1.97	1.77	2.04	1.79	1.45	1.40	1.12	1.29	0.78	0.90
Non-bank finance
Venture and growth capital	EUR million	263	205	159	280	186	270	241	230	339	554	532	699	475	424
Venture and growth capital (growth rate)	%. Year-on-year growth rate	..	-22.34	-22.45	76.57	-33.49	45.13	-10.81	-4.73	47.66	63.33	-4.03	31.47	-32.03	-10.90
Other indicators
Payment delays, B2B	Number of days	7.2	6.1	12.0	12.0	13.0	12.0	10.0	9.0	4.0	4.0	2.0	3.0	3.0	20.0
Bankruptcies, SMEs	Number	..	..	2 563	2 583	1 938	1 958	1 698	1 328	1 584	1 853	1 888	2 013	2 153	1 841
Bankruptcies, SMEs (growth rate)	%. Year-on-year growth rate	..	..	..	0.78	-24.97	1.03	-13.28	-21.79	19.28	16.98	1.89	6.62	6.95	-14.49

Source: See Table 11.4

SMEs in the national economy

In 2019, SMEs (approximated by firms with less than 100 employees) accounted for 98.7% of all enterprises and accounted for 39.1% of all full time employees in Denmark, not counting non-employer enterprises.

Table 11.2. Distribution of firms and employees, 2019

By firm size

Firm size (employees)	% of firms	% of full time employees
SMEs (1-99)	98.7	39.1
- Micro (1-9)	86.3	14.4
- Small (10-49)	11.0	17.2
- Medium (50-99)	1.4	7.5
Large (100+)	1.3	60.9

Note: Non-employer enterprises (< 1 full time equivalent employee) are not included.

Source: Danmarks Statistik.1

SME lending

Lending to SMEs (approximated by loans amounting to less than EUR 1 million) from financial institutions declined from DKK 68 to 56 billion between 2019 and 2020, although the 2020 level was still higher than in the years 2016-2018. The share of new SME lending compared to new total lending was 11.03% in 2020, slightly below the average of 11.68% in the period 2010-2020.

New short-term SME loans increased by 6.29% in 2020 while new long-term loans decreased by 30.96%. Although the share of short-term loans to long-term loans thus increased from 35.66% to 46.04%, it is still below the average of 54.14% in the period 2010-2020.

Credit conditions

Interest rates for SMEs as well as for large firms have steadily declined since 2008, but the interest rates for SMEs increased slightly in 2020 from 1.85% to 1.93%, resulting in a widening interest rate spread. However, with the exception of 2019, the 2020 interest rate spread of 0.90% is the lowest since 2007.

The quarterly credit condition survey of Danmarks Nationalbank (the Central Bank of Denmark) concerning corporate lending to SMEs (from banks) shows that credit standards have almost consistently tightened between the fourth quarter of 2018 and the first quarter of 2021 after having relaxed from the first quarter of 2014 until the third quarter of 2018. The demand for new loans among new SME customers has increased substantially between the first quarter of 2020 and the first quarter of 2021, while the demand among existing SME customers has been stable.2

Alternative sources of SME financing

According to the European Venture Capital Association database (published by Invest Europe), venture and growth capital financing from Danish private equity firms decreased in 2019 and 2020 after reaching a record high level of EUR 699 million in 2018. However, the 2019 and 2020 levels of venture investments are higher than any year between 2010 and 2017.

Table 11.3. Venture capital and growth capital in Denmark, 2010-2020

By stage of investment (in EUR thousand)

	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020
Total venture	146 445	182 938	191 778	199 649	201 866	283 918	297 866	264 472	615 969	413 915	356 946
Growth capital	133 736	3 425	78 683	41 584	27 952	55 438	256 412	267 458	83 355	61 445	66 598
Total	280 181	186 363	270 461	241 233	229 819	339 356	554 277	531 930	699 324	475 360	423 544

Note: Industry statistics.

Source: Invest Europe.

Vækstfonden (The Danish Growth Fund) has reached a similar conclusion regarding venture investments in Danish companies (market statistics). Their analysis shows that the Danish venture market recovered quickly after a sharp decline in the first quarter of 20203 .

Other indicators

According to Intrum, B2B (business-to-business) payment delays increased dramatically to 20 days in 2020 after having been at an all-time low of 2 days in 2017 and 3 days in 2018 and 2019. The number of bankruptcies among SMEs decreased from 2 153 in 2019 to 1 841 in 2020. The low number of bankruptcies reflect the extensive COVID-19 support measures during 2020.

Government policy response

Vækstfonden (The Danish Growth Fund) is a government backed investment fund established in 1992. Vækstfonden offers guarantees and loans to established SMEs and entrepreneurs, invests equity in young companies with growth potential and engages in fund of funds activities by investing in venture and small to mid-cap funds.

EKF (Denmark's Export Credit Agency) is a government backed export credit agency established in 1922. EKF offers guarantees, insurance and loans to Danish exporting companies and their customers in order to make it more attractive for them to purchase products from Danish companies.

Government guaranteed loans

Growth loans (Vækstlån) are subordinated loans issued by Vækstfonden directly to SMEs seeking capital for business development or a change of ownership. The financial assessment is based on the company’s current and past performance, its potential for growth and profitability, as well as its management capabilities. All loans are granted as part of a funding package that is provided by other financial partners, such as banks and mortgage institutions. Only loans above DKK 1 million are issued. The interest rate is set at least 30% above the comparable market rate to ensure minimal market distortions, avoid a crowding out of the private sector, and hedge against collections/defaults in which banks and other creditors have preferred claims on pledged collateral.

In 2019, the Danish government introduced a match financing scheme (Matchfinansieringsordningen) which allows Vækstfonden to issue loans (Startlån), convertible loans (Early Engagement) and loans designed to match investments of pre-approved angel investors (Business Angel Matching Lån). The loans are specifically targeting young enterprises which may in time be eligible for venture capital, in other words highly scalable and potentially global enterprises with an innovative product or business model. The maximum loan amount is DKK 7.5 million and the maximum maturity is 10 years.

The export loan facility in EKF was established to support the international competitiveness of Danish enterprises and benefit Danish exports affected by the financial and economic crisis. The credit scheme supports Danish exports with long credit periods, i.e. more than two years. The total credit limit for the export loan scheme is DKK 25 billion. On 1 January 2016, the export loan scheme was merged with EKF, with EKF assuming all rights and obligations associated with the scheme.

The amount of government guaranteed loans decreased from DKK 1 246 million in 2019 to DKK 1 153 million in 2020. However, this development must be seen in the light of the COVID-19 loan and guarantee schemes outlined below.

Government loan guarantees

Small guarantees (Vækstkautioner) are provided to SMEs and cover up to 75% of a bank’s loss in the event of a default. Capped at DKK 2 million, growth loan guarantees can be granted to finance business development, changes in ownership, capital investments, or the development of new and improved products.

Compared to the small guarantees, growth guarantees (Vækstgarantier) target the more established SMEs that need to make larger investments or expand their businesses. A growth guarantee covers the risk associated with insufficient collateral as a basis for achieving a pre-payment warranty or lease, for example. A company can obtain a growth guarantee as part of a growth plan that has sound economic perspectives. Only guarantees above DKK 1 million are issued, either alone or in combination with a growth loan. Growth guarantees cover 100% of loan risk (typically for 50% of the project costs) and companies must provide collateral to obtain them. Unlike for small guarantees, Vækstfonden has no political mandate to generate aggregate losses under on the growth guarantee scheme.

The working capital guarantee in EKF was first established as a temporary guarantee scheme to provide operating and development credit up to DKK 2 billion, for Danish export firms. EKF can guarantee up to 80% of operating and development credit extended by banks to Danish export firms and their sub-suppliers. EKF assumes all rights and obligations associated with the scheme.

Government loan guarantees issued to SMEs decreased from DKK 512 million in 2019 to DKK 456 million in 2020. However, this development must be seen in the light of the COVID-19 loan and guarantee schemes outlined below.

COVID-19 loan and guarantee schemes

Due to the effects of COVID-19, the Danish government has implemented two new loan schemes under which Vækstfonden can match the investments of professional investors with a loan of three times the amount of the investment (COVID-19-mathfinansieringsordninger). The main objective of the schemes has been to keep up private investment in early stage and venture companies during the crisis.

Additionally, two guarantee schemes targeting SMEs have been implemented in Vækstfonden and EKF. The guarantees can cover 90% of the risk on new loans from commercial banks to SMEs which have experienced a decline in turnover of more than 30% due to COVID-19.

In 2020, a total loan amount of DKK 1 781 million was issued to SMEs by Vækstfonden, while Vækstfonden and EKF issued guarantees to SMEs for a total of DKK 1 492 million.

Figure 11.1. Trends in SME and entrepreneurship finance in Denmark

Source: See Table 11.4

Statlink

Table 11.4. Definitions and sources of indicators for Denmark’s Scoreboard

Indicator	Definition	Source
Debt
Outstanding business loans, total	Outstanding business loans amount to existing loan agreements that have not been realized at the time of accounting and hence still exist on the balance sheet. All loans summarized in the data regard non-financial institutions. Loan providers are banks and mortgage-credit institutions. Regarding banks, outstanding loans amount to a day-to-day average of the monthly balance. As for mortgage-credit institutions, outstanding loans amount to the balance at the end of the month for mortgage loans based on covered bonds, and as a day-to-day average of the monthly balance regarding other loans. There is a break in the data in October of 2013.	Danmarks Nationalbank, DNRUUM
New business lending, total	Flow of loans to non-financial companies of all sizes. Data is monthly, aggregated to arrive at annual data. There is a break in the data in October of 2013.	Danmarks Nationalbank, DNRNUM
New business lending, SMEs	Flow of loans to non-financial companies of less than 7.5 MM DKK. Data is monthly, aggregated to arrive at annual data. There is a break in the data in October of 2013.	Danmarks Nationalbank, DNRNUM
New short-term loans, SMEs	Short-term SME lending is approximated by using loans issued at a value of EUR 1 MM or lower, with an interest rate to be adjusted annually or more frequently. There is a break in the data in October of 2013.	Danmarks Nationalbank, DNRNUM
New long-term loans, SMEs	Long-term SME lending is approximated by using loans issued at a value of EUR 1 MM or lower, with an interest rate to be adjusted less than annually. There is a break in the data in October of 2013.	Danmarks Nationalbank, DNRNUM
Government loan guarantees, SMEs	Guarantees (growth guarantees and small guarantees) to SME enterprises granted by Vækstfonden (The Danish Growth Fund). In 2020, the COVID-19 SME guarantee schemes administered by The Danish Growth Fund and Denmark's Export Credit Agency (EKF) have also been included.	Vækstfonden and EKF
Government guaranteed loans, SMEs	Loans to SME enterprises granted by Vækstfonden (The Danish Growth Fund) and backed by government guarantees. The loans consist of growth loans (Vækstlån) and loans under the match financing scheme (Matchfinansieringsordningen). In 2020, the COVID-19 loan schemes (COVID-19-matchfinansieringsordninger) administered by Vækstfonden have also been included.	Vækstfonden
Interest rate, SMEs	Weighted average annual rates for new loans, with maturity up to 1 year; and amounts for up to DKK 7.5 million. Monthly rates are weighted such that interest rates in very active months should have a larger weight when calculating the yearly interest rate, than interest rates where almost no loans were issued. There is a break in the data in October of 2013.	Danmarks Nationalbank, DNRNUM
Interest rate, large firms	Weighted average annual rates for new loans, with maturity up to 1 year; and amounts for more than DKK 7.5 million. Monthly rates are weighted such that interest rates in very active months should have a larger weight when calculating the yearly interest rate, than interest rates where almost no loans were issued. There is a break in the data in October of 2013.	Danmarks Nationalbank, DNRNUM
Non-bank finance
Venture and growth capital	Investments - Industry statistics (by country of private equity firm), All Private Equity. Sum of Total venture and Growth capital.	Invest Europe
Other indicators
Payment delays, B2B	Average delay in number of days for business-to-business. Data for 2007 is the average for both the number of days for business-to-business, business-to-customer and public entities.	Intrum
Bankruptcies, SMEs	Monthly declared bankruptcies in companies with employment of 1-19 employees. Aggregated to annual data.	Danmarks Statistik, KONK7

References

Danmarks Nationalbank, DNRNUM (2021): ”DNRNUM: New domestic loans excl. revolving loans, etc. from MFI sector excl. Danmarks Nationalbank.” https://nationalbanken.statistikbank.dk/statbank5a/default.asp?w=1843

Danmarks Nationalbank, DNRUUM (2021): ”DNRUUM: Outstanding domestic loans from the MFI sector excl. Danmarks Nationalbank.” https://nationalbanken.statistikbank.dk/statbank5a/default.asp?w=1843

Danmarks Nationalbank, DNUDERHV (2021): “DNUDERHV: Credit condition survey, corporate lending (net figures).”

https://nationalbanken.statistikbank.dk/statbank5a/default.asp?w=1843

Danmarks Statistik, KONK7 (2021): “KONK7: Bankruptcies by employed.” http://www.statbank.dk/KONK7

Danmarks Statistik, GF3 (2021): ”GF3: General enterprise statistics.” https://www.statistikbanken.dk/statbank5a/SelectVarVal/Define.asp?Maintable=GF3&PLanguage=1

Intrum (2021): “European Payment Report 2020.”

https://www.intrum.com/media/2772/epr-2018.pdf

Invest Europe Research (2021): “European Private Equity Activity Data 2020.” https://www.investeurope.eu/research/activity-data/

Vækstfonden (2021): “Årsrapport 2020: Hoved- og nøgletal.”

https://vf.dk//media/2645/vf-aar2020.pdf

Vækstfonden (2021): “Venturemarkedet 2020.”

https://vf.dk/analyser/venturemarkedet-2020/

Notes

← 1.  Danmarks Statistik, GF3

← 2.  Danmarks Nationalbank, DNUDERHV

← 3.  Vækstfonden, Venturemarkedet 2020