Financing SMEs and Entrepreneurs 2022

39. Slovenia

Key facts on SME financing

Slovenian SMEs employ 73.2% of the workforce in the business economy (486 458 people) and produce 65.3% of the value added (EUR 15.8 billion). Micro firms account for more than one third of all employment in the business economy, while the shares of large firms in both employment and value added are below the OECD average, in line with the small size of the economy.

Firms manufacturing coke and petroleum are all SMEs. Otherwise, SMEs dominate mostly the services sector in terms of employment. Relative to the OECD average, the employment share of SMEs is significantly higher in the ICT sector and in the manufacture of machinery. On the other hand, employment in textiles and apparel and in electrical equipment manufacturing is relatively more concentrated in large companies.

In 2020, due to the COVID-19 pandemic, 60% of SMEs in Slovenia applied for government support, such as refunds for the furlough scheme. However, despite the public support deployed as a response to the pandemic, Slovenian SMEs experienced a decline in value added by 6.2% and in employment by 0.6%. The most significant contractions were experienced by the food and accommodation services sector followed by the administrative and support services sector.

SME lending more than halved between 2011 and 2020, decreasing from EUR 9.8 billion in 2011 to EUR 4.69 billion in 2020. Between 2019 and 2020, new SME lending increased by 23% (inflation adjusted terms) driven by an increase of approved credit lines and loan renegotiations and restructuring that followed a legislative moratorium to tackle the effects of the pandemic.

Despite a further decrease of business loans from 2015 to 2020, the trend in outstanding SME loans reversed and started to rise during this period reaching EUR 4.7 billion in 2020. As a result, the share of SME outstanding loans in total business loans rose to 51.59% in 2020.

Interest rates for SMEs declined from 6% in 2011 to 2.5% in 2020. The interest rate spread between bank loans to large enterprises and to SMEs fluctuated between 1.42% and 1.36% over the 2007-2013 period, and reached 0.73% in 2020.

Due to loan restructuring and write-offs, SME non-performing loans started to decline in 2015 and reached 5% in 2020.

Table 39.1. Scoreboard for Slovenia

Indicator	Unit	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020
Outstanding business loans, SMEs	EUR billion	7.30	8.12	7.86	9.67	9.79	9.53	5.70	4.31	4.12	4.35	4.61	4.71	4.80	4.74
Outstanding business loans, total	EUR billion	16.80	19.94	19.86	20.83	20.09	18.64	14.14	11.21	10.04	9.31	9.31	9.18	9.29	9.09
Share of SME outstanding loans	% of total outstanding business loans	43.45	40.71	39.59	46.43	48.75	51.14	40.29	38.47	41.01	46.79	49.52	51.33	51.69	52.13
New business lending, total	EUR billion				15.29	18.57	13.71	9.42	8.60	6.98	6.07	5.22	5.65	5.32	6.25
New business lending, SMEs	EUR billion				5.89	7.21	5.79	3.64	3.61	2.86	2.86	2.91	2.94	2.26	3.16
Share of new SME lending	% of total new lending				59.36	57.93	63.06	56.34	54.99	58.07	56.90	63.55	58.54	53.16	51.91
Outstanding short-term loans, SMEs	EUR billion	2.09	2.53	2.15	2.76	3.09	3.19	1.74	0.79	0.61	0.78	0.80	0.83	0.72	0.63
Outstanding long-term loans, SMEs	EUR billion	5.21	5.59	5.71	6.91	6.70	6.34	3.96	3.53	3.51	3.58	3.82	3.88	4.08	4.11
Share of short-term SME lending	% of total SME lending	28.62	31.19	27.33	28.54	31.55	33.47	30.51	18.22	14.70	17.87	17.26	17.72	14.94	13.37
Government loan guarantees, SMEs	EUR million	3.28	22.22	45.20	32.93	19.15	3.07	1012	552.1	0.00	520	710	0.00	0.00	155.9
Non-performing loans, total	% of all business loans	2.52	3.60	6.66	11.16	17.44	22.86	20.31	17.51	15.24	16.82	12.91	8.41	4.46	3.85
Non-performing loans, SMEs	% of SME loans	3.77	5.68	8.93	14.68	22.25	28.37	27.57	25.88	24.48	22.10	15.87	9.73	5.54	4.64
Interest rate, SMEs	%	7.07	7.46	6.95	5.82	6.01	5.89	5.84	5.19	3.73	3.00	2.77	2.60	2.48	2.53
Interest rate, large firms	%	5.55	6.07	4.61	5.02	5.17	4.87	4.52	4.19	2.92	2.19	2.26	2.05	1.64	1.79
Interest rate spread	% points	1.52	1.39	2.33	0.79	0.83	1.02	1.32	1.00	0.81	0.81	0.51	0.55	0.84	0.73

SMEs in the national economy

Slovenian SMEs employ 73,2% of the workforce in the business economy (486 458 persons employed), and produce 65.3% of the value added (EUR 15,8 billion). In 2014-2018, the value added of Slovenian SMEs rose by 33.5%, which is slightly more than the 30.8% growth of large firms. In 2020 however, Slovenian SMEs were badly affected by the COVID-19 pandemic which caused the decline of the SME value added by 6,2% and employment dropping by 0,6%. Most significant contraction was experienced by food services and accommodation sector followed by the administrative and support services sector (EC, 2021).

Micro firms account for more than one third of all employment in the business economy, while the share of large firms in both employment and value added are below the OECD average, in line with the small size of the economy.

Firms manufacturing coke and petroleum are comprised only of SMEs. Otherwise, SMEs dominate mostly the service sector in terms of employment. Relative to the OECD average, the share of SMEs is significantly higher in the ICT sector and in manufacture of machinery. On the other hand, employment in textiles and apparel and in electrical equipment manufacturing activities is relatively more concentrated in large companies. (OECD, 2019).

SME lending

While SME lending increased between 2007 and 2011, it more than halved between 2011 and 2020, decreasing from EUR 9.8 billion in 2011 to EUR 4.69 billion in 2020. Over this period, short-term SME lending declined more than long-term SME lending; short-term SME loans accounted for 32% of SME loans in 2011, compared to 13.7% in 2020. Between 2019 and 2020, new SME lending increased from EUR 2.26 billion to EUR 3.16 billion. The increase in new loans for 2020 could partly be attributed to increase of approved credit lines and loan renegotiations and restructuring that followed a legislative moratoria as a measure to tackle the contracted business activity caused by COVID-19.

Outstanding business loans rose between 2007 and 2010, but fell afterwards, however not as dramatically as SME loans, thus reducing the share of outstanding SME loans. Despite further decrease of business loans from 2015 to 2020, the trend of outstanding SME loans inverted and they started to rise during this period and where they reached EUR 4.7 billion. As a result, the share of SME outstanding loans rose to 51.59% in 2020.

This evolution follows a protracted decline of GDP in Slovenia since 2008; it is estimated that real GDP decreased by more than 9% between 2008 and 2013 (European Commission, 2015). This trend reversed in 2014, but despite growth since 2014, lending continued to drop, especially for SMEs. This is in large part due to the losses suffered by the Slovenian banking system, especially its large state-owned bank. Slovenia experienced a lending boom prior to the financial crisis and financial institutions suffered substantial losses, as well as high and increasing levels of non-performing loans (OECD, 2015).

Credit conditions

Interest rates for SMEs declined in recent years, from 6% in 2011 to 2.5% in 2020. The interest rate spread between bank loans to large enterprises and to SMEs fluctuated between 1.42 and 1.36 percentage points over the 2007-2013 period, and reached 0.73 percentage points in 2020. While large enterprises enjoyed overall better credit terms during this period, the decrease of the spread in the last seven years shows that credit conditions for SMEs and large companies are converging, especially due to the government policy programs intended for SME financing.

Other indicators

SME non-performing exposures increased from 4% of all SME exposures in 2007 to 26% in 2014. Along with the GDP recovery starting from 2014 and active government programs for rehabilitation of the banking system, and due to loan restructuring and write-offs in 2014, SME non-performing exposures started to decline in 2015 and reached 5% in 2020.

Government policy response

Direct loans

Direct loans are mostly provided by the Slovenian Investment and Development Bank (SID bank), but also public funds such as the Slovene Enterprise Fund (SEF), the Slovenian Regional Development Fund (SRDF), Eco Fund and the Housing Fund. According to these sources, direct loans to SMEs declined by almost half between 2007 and 2010. At the end of 2010, the Government (the Ministry of Economic Development and Technology) together with SID bank offered EUR 150 million for RDI in enterprises. In 2013, additional funds for SMEs (4 financial lines, patient loans) were offered by SID bank, for a total value of EUR 500 million. In 2018, new products (for tourism, wood processing, investments, internationalisation, RDI) were developed and implemented. SID bank as Fund of fund manager, financed by European cohesion policy (ESIF), manages also the funds for loans.

Moreover, the SEF increased the use of loans by offering guarantees for bank loans with interest rate subsidies since 2009. It offers also micro loans for micro and small enterprises for working capital and investments. In the context of the COVID-19 crisis, the SEF offered zero interest rate loans.

Finally, the SRDF offers loans (EUR 14.5 million) to Slovene enterprises on border and problematic areas. During the COVID-19 crisis it offered EUR 26.6 million in zero interest rate loans for SMEs in these areas.

As a response to the crisis, the government also offered a furlough scheme. Nonetheless, the majority of firms that submitted an application pointed to weaknesses, such as the time taken to process their applications, and claimed that the conditions to get support were demanding, difficult to understand and even contradictory, according to the survey conducted by Bank of Slovenia (EC, 2020)

The Slovene Enterprise Fund (SEF)

The Ministry of Economic Development and Technology provides guarantees for bank loans and interest rate subsidies through the SEF. The programme of Guarantees for bank loans with interest rate subsidies started at the beginning of 2009, but loan guarantees were provided prior to this by the SEF.

At the end of 2009, SEF introduced a new Programme of financial engineering instruments for SMEs over the 2009-13 period (PIFI) that was adopted by the government of Slovenia. PIFI combined different financial instruments: debt instruments (guarantees for bank loans with subsidies of interest rate, microcredits), and equity instruments (venture capital, seed capital – convertible loans and capital investment combined with free-of-charge mentoring, training and networking).

In the period 2014 – 2020, SEF was selected by the Fund of Funds manager (SID bank) to act as a financial intermediary for equity financing (seed capital) and for micro-loans.

Besides funding through Fund of Funds (ESIF), SEF implemented guarantees for bank loans with interest rate subsidies, grants for start-ups and so called “vouchers” - support for SMEs in small amounts up to 10,000 EUR.

In the period 2017 – 2020 SEF approved EUR 531.4 million of financial support and additionally EUR 29.79 million for mentoring and trainings. In this period it supported 15,400 SMEs (5% were startups). These SMEs received an amount of EUR 947.05 million in investments.

Only in 2020, SEF offered EUR 176.2 million of financial support and EUR 10 million of mentoring and trainings. It supported EUR 2.985 million projects of SMEs1.

The Slovenian Investment and Development Bank (SID)

Loans for SMEs are also provided by SID Bank, which is responsible for developing, providing and promoting innovative and long-term (direct and indirect) financial services, designed to supplement financial markets for the sustainable development of Slovenia.

Besides direct loans to SMEs, SID Bank also provides indirect loans; i.e. funding which enables commercial banks to lend.

In 2011, SID bank offered EUR 150 million (with a third of this amount being provided by the Ministry of Economic Development and Technology) of direct loans for technological projects. The programme ended in 2016.

In 2013, SID bank started to support SMEs with EUR 500 million worth of financial tools (EUR 120 million of which was provided by the Ministry of Economic Development and Technology). SID offered four different lines for SMEs: microfinancing, business financing, investment and employment and RDI.

Out of this EUR 500 million budget, SID designed a patient loan fund in 2015 and started implementing loans with long-term grace periods for a total amount of EUR 150 million.

SID bank also prepared proposals for new instruments, targeting specific investments:

• Research and innovation (RDI) (EUR 43.5 million)

• Tourism (EUR 160 million)

• Wood processing (EUR 20 million)

• Investments (EUR 77.5 million)

• Internationalisation (EUR 50 million).

At the end of 2017, a EUR 253 million funding agreement was signed between the Ministry of Economic Development and Technology and SID bank. The SID bank operates as a Fund of Funds manager of ESIF funds in four different areas: SMEs, RDI, Energy Efficiency and Urban Development. It operates through financial intermediaries, as well as a direct lender. Taking into account the financial leverage effect, there will be around EUR 370 million of favourable funds on the market by the end of 2023.

Since November 2017, SID bank also offers equity financing (mezzanine) together with EIB, amounting to EUR 100 million through The Slovene Equity Growth Investment Programme – SEGIP.

The results of the implementation of Fund of Funds and Loan Funds by December 2019 are presented in Table 39.2.

Table 39.2. Funding under the SID Bank Fund of Funds and Loan Funds

In EUR million

Alternative source	Amount available	Granted until 31/12/2019 (30.6.2021)
Financial Instruments (2014-2023) Fund of Funds
FI - RDI loans	58	25 (41,6)
FI - RDI guarantees	30	0 (1,0)
FI - SMEs microloans	60	40 (54)
FI - SME guarantees	65	0 (28)
FI - SME eguity financing	10	0 (3,0))
FI - Loans for energy efficiency	25	0.2 (0,8)
FI - Loans for urban development	5	2.1 (4,7)
Total	253	133,1
Loans offered by SID bank
PS1 - Wood processing industry, RDI	119	119 (145)
PS2 - Tourism, internationalisation, investments	335	405.5 (475)
PS3 - Patient loans	200	128 (192)
Total	654	812

Note: Figures up to 31. 12. 2019 (FI - granted amount EU and SI national leverage). Figures up to 30. 6. 2021 (31.8.2021 for Loan Funds).

Government reforms

In 2018, Slovenia prepared a new system to manage and implement financial instruments from the European Structural and Investment Funds (ESIF) for the 2014-20 period. The basis was ex-ante analysis of financial instruments 2010-14 prepared at the end of 2015 by the Governmental Office for development and cohesion policy and PwC (PricewaterhouseCoopers) and updated in 2016 thanks to EIB (European Investment Bank) analysis. The new model of implementing financial instruments through a fund of funds determined five fields where there is a financial gap: SMEs (EUR 135 million), RDI (EUR 88 million), urban development (EUR 5 million) and energy efficiency and agriculture (EUR 50 million). By October 2017:

• The key elements of financial instruments for 2014-20 were adopted by the Government of Slovenia (15 June 2017);

• The Implementation plan for the 2018-19 financial instruments was adopted by the Government of Slovenia (September 2017);

• The selection of the fund of funds’ manager was finalised (SID bank acts as the fund of funds’ manager) and the financial agreement was signed in November 2017.

The first tranche (EUR 63.25 million) was paid into the fund of funds in December 2017. In 2018, internal procedures (IT, legal basis, etc.) were dealt with by SID bank, two financial instruments were developed (RDI loans and microcredits), and the first financial intermediaries were selected (SBER bank for RDI loans, Primorska Hranilnica and SEF for microcredits). In addition, the first favourable funds (RDI loans) reached the final beneficiaries (SMEs) in 2018.

In 2018 and 2019, other products were developed, such as equity financing tools, loans for energy efficiency and loans for urban development. The financial intermediary for equity financing is SEF. Loans for energy efficiency and urban development are implemented by SID bank directly.

The second tranche of funding (EUR 63.25 million) was paid into the fund of funds in November 2019. The third tranche (EUR 63.25 million) is planned to be paid at the end of 2021.

In 2020 the last financial instruments, the portfolio guarantees for SMEs and RDI, were developed and made available to the final recipients. In September 2020 a second FI operation (FI COVID-19) has been set up, to cover the extra needs of SMEs being affected by COVID-19. Additional EUR 60 million for SMEs and EUR 5 million for RDI were made available to the final recipients (for investments and working capital). Together with the national leverage additional EUR 97.5 million of favourable funds will be made available by 2023.

The four tranches (EUR 16,25 million each) were already paid to the selected Fund of Funds, also SID bank. Microloans for SMEs will be implemented by three financial intermediaries (SEF, primorska hranilnica Vipava and the third being awarded with PPP towards the end of 2021) and SID bank itself. Loans for RDI will be implemented by SID bank alone.

Table 39.3. Funding under the SID Bank Fund of Funds (FI COVID-19)

In EUR million

Alternative source	Amount available	Granted until (30.6.2021)
Financial Instruments (FI COVID-19) Fund of Funds
FI - RDI loans	5	0,4
FI - SMEs microloans	60	62
Total	65	62,4

Note: granted until amount (EU + SI national leverage)

Figure 39.1. Trends in SME and entrepreneurship finance in Slovenia

Source: See table 39.4

Statlink

Table 39.4. Definitions and sources of indicators for Slovenia’s scoreboard

Indicator	Definition	Source
Debt
Outstanding business loans, SMEs	BANK loans to SME companies of the non-financial sector (S.11), stocks	Bank of Slovenia
Outstanding business loans, total	Bank loans to companies of the non-financial sector (S.11), stocks	Bank of Slovenia
Share of SME outstanding loans	..	Bank of Slovenia
New business lending, total	Sum of new bank loans to companies of the non-financial sector (S.11)	Bank of Slovenia
New business lending, SMEs	Sum of new bank loans to SME companies of the non-financial sector (S.11)	Bank of Slovenia
Share of new SME lending	..	Bank of Slovenia
Outstanding short-term loans, SMEs	Short-term bank loans to companies of nonfinancial sector (S.11) with less or equal to 250 employees;	Bank of Slovenia
Outstanding long-term loans, SMEs	Long-term bank loans to companies of nonfinancial sector (S.11) with less or equal to 250 employees	Bank of Slovenia
Share of short-term SME lending	..	Bank of Slovenia
Government loan guarantees, SMEs	..	Ministry of Finance
Non-performing loans, total	Delayed loan repayments over 90 days	Bank of Slovenia
Non-performing loans, SMEs	Delayed loan repayments over 90 days for SMEs	Bank of Slovenia
Interest rate, SMEs	Interest rates for loans to companies of the non-financial sector (S.11) with less or equal to 250 employees	Bank of Slovenia
Interest rate, large firms	Interest rates for loans to companies of the non-financial sector (S.11) with over 250 employees	Bank of Slovenia
Interest rate spread	Calculated difference	..

References

EC(European Commission) (2020), SME COUNTRY FACT SHEET SLOVENIA, https://ec.europa.eu/docsroom/documents/46090

EC (European Commission) (2019), SME Policy Database, https://ec.europa.eu/growth/smes/business-friendly-environment/performance-review_en#interactive-sme-database.

OECD (2017), OECD Economic Surveys: Slovenia 2017, OECD Publishing, Paris, https://doi.org/10.1787/eco_surveys-svn-2017-en.

OECD (2015), OECD Economic Surveys: Slovenia 2015, OECD Publishing, Paris, https://doi.org/10.1787/eco_surveys-svn-2015-en

OECD (2019), OECD SME and Entrepreneurship Outlook 2019, OECD Publishing, Paris,

https://doi.org/10.1787/34907e9c-en

ANNUAL REPORT of SID Bank and SID Bank Group 2016,

https://www.sid.si/sites/www.sid.si/files/documents/angleski-dokumenti/annual_report_2016.pdf

ANNUAL REPORT of SID Bank and SID Bank Group 2017,

https://www.sid.si/sites/www.sid.si/files/documents/sid_bank_annual_report_2017.pdf

ANNUAL REPORT of SID Bank and SID Bank Group 2018,

https://www.sid.si/sites/www.sid.si/files/documents/annual_report_2018_-_eng.pdf

ANNUAL REPORT of SID Bank 2020,

https://www.sid.si/sites/www.sid.si/files/documents/annual_report_2020_koncno.pdf

Note

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