Public loan guarantees promote SME growth in Norway

Small and medium-sized enterprises (SMEs) make up the backbone of many European economies, and are important incubators for innovation.

Although many innovative SMEs demonstrate good profitability and stable growth, they cannot always come up with adequate collateral to successfully apply for a bank loan. This can be a considerable obstacle to continued growth and hinder development of improved products, technologies or services.

On behalf of the Norwegian state, Innovation Norway has therefore established the Vekstgaranti scheme – a bank loan guarantee scheme for loans to innovative, fast-growing SMEs. Under the scheme, Innovation Norway can cover up to 75 per cent of a bank’s default risk, making banks more willing to offer the companies much-needed capital.

About the Vekstgaranti scheme

• Innovation Norway guarantees up to 75% of bank losses on SME loans.
• Eligible SMEs have adequate debt servicing capacity, but inadequate collateral.
• SMEs receive a loan of max. NOK 4 million for investment and working capital.
• Partnership scheme between Innovation Norway and European Investment Fund (EIF) under Horizon 2020.

Flexibility, security and greener solutions

“The Vekstgaranti scheme has given us increased credit facility, which has given us more freedom and room to manoeuvre. This means we can take on a little more risk in our projects,” says Anders Gundersen.

Gundersen is CEO of Sensonomic, a Norwegian supplier of AI-based agritech software which makes farming more resource-efficient. He believes that the scheme is particularly important for promoting sustainable products and solutions.

“Green solutions often take a bit longer to develop. The scheme gives us the time we need to adapt to market needs.”

This is an experience Sensonomic shares with WINNS, a Norwegian developer of pioneering heating and cooling systems that cut both energy consumption and emissions of harmful F-gases. According to CEO Guro Solem, the Vekstgaranti scheme has given the company the security it needs to make its solutions even better – and greener.

“As a growth company, our liquidity is very sensitive to sales. That is, our liquidity is influenced by our ability to sell. The scheme has enabled us to continue focus on development, regardless of whether sales have gone through,” she says.

More important than ever

The Vekstgaranti scheme was launched as a pilot project in 2018 with three Norwegian banks as partners. DNB has been on board since the beginning. The bank counts one-third of all Norwegian SMEs – 220 000 in total – on its list of customers.

“The scheme has allowed us to finance more exciting projects and companies which we believe in, but would’ve been difficult to finance from a pure banking perspective, due to a lack of collateral,” says Roger Antonesen, EVP SME Corporate Banking at DNB.

In the pilot phase, the scheme had a total loan framework of NOK 800 million (roughly USD 77 million). This has now been increased to NOK 2 billion (roughly USD 193 million) distributed among 14 banks.

According to Antonesen, the global economic downturn from coronavirus underlines the importance of the Vekstgaranti scheme.

“We see that the scheme is more important than ever. It helps to keep development of projects and companies from grinding to a halt.”

Risk relief rather than cash

Norway has a proactive, well-developed business support system to facilitate the emergence of new startups and innovative green solutions.

Pure monetary support is one part of the system. The Vekstgaranti scheme is different, as Antonesen explains:

“The scheme guarantees ordinary company loans based on a credit rating. The recipient company must therefore satisfy stricter requirements for profitability and quality compared with traditional support. And the scheme doesn’t actually involve financial support unless the loan is defaulted.”

In other words, it is a very cost-effective way of promoting growth, value creation and innovation in SMEs. It is extremely seldom that Innovation Norway has to pay out a guarantee.

“Practically none of the loans we have issued under the scheme has defaulted,” Antonesen points out.

He also says that the scheme has been extremely popular among its target group.

“In 2019, DNB had a Vekstgaranti framework of NOK 425 million. This was used up by June, so we’re very pleased that it has been increased to NOK 700 million.”

“All in all, it’s a scheme with very high demand, minimal red tape and clear guidelines. It’s an excellent financial instrument that enables us to do more for innovative startups and growth companies in Norway,” Antonesen concludes.