Netherlands, 36.0% in the UK and 29.7% in Bel-
General terms such as guarantee levels and inter-
gium. The implications are that schemes, regard-
est rate premium are fairly consistent across major
less of the upper size limit of firms allowed access
countries, including Denmark, at 75% and 1–2%
to them, focus on the size class of firms most likely
over the conventional lending rate. Sweden, by con-
to face binding credit constraints. Thus the potential
trast, adopts a full-risk pricing model and has the
for economic value added is higher.
highest average interest rate premiums. This suggests that they are making loans at a point above which the bank loan supply curve is backward bend-
6.3.10 Summary Guarantee schemes have been a feature of European public-policy interventions in capital markets for several decades. Each country has its particular variants, and some countries have more than one scheme, but there are some common features across Europe. Perhaps the most common feature is that access to guarantee schemes is fairly open in terms of the types of firms that can apply for a guaranteed loan, with the notable exception of a firm size limit. This latter point simply reflects the well-understood belief that SMEs face more difficulties when seeking to raise external debt than large firms.
ing, even for guaranteed loans. This simply means that lenders cut off the supply of loans at high interest rates as they take the view that any investment capable of generating enough cash-flow to repay such a high interest rate is too risky. It also implies that borrower firms must have investment projects that are capable of generating high returns or have high default rates. Despite this, there remains excess demand for guaranteed loans in Sweden which would imply that their risk assessment model is choking off the highest risk loan applications. The pricing model is interesting as the recent UK EFG evaluation suggested that relatively small upward shifts in the borrowing cost would deter a significant proportion of firms from taking out a guaranteed
There are important differences in the scale of guar-
loan.
antee scheme operations, and the Swedish scheme is very large compared to its economy. It is also very well-resourced in terms of its administration capacity which partly reflects the guarantee model which is quasi-public sector. This contrasts with other countries such as the Netherlands and the UK who use a public-private guarantee model under which lending is essentially devolved to private-sector financial institutions, as indeed it is in the US and Canada, and oversight rests with a government agency. Importantly, the countries that use privatesector financial institutions to deliver loans incentivise good behaviour by capping the overall loss rate,
What is also apparent across countries is that, despite fairly wide access conditions in terms of what types of firms can access guaranteed loans, the reality is that they are issued disproportionately to; (a) manufacturing firms, (b) micro firms, and (c) younger firms. This suggests that the potential for economic value added is high as all manufacturers tend to have a higher exporting potential and make investments in capital with productivity enhancing potential. Further, younger, and to a lesser degree smaller, firms tend to grow faster, and create more jobs and value added per DKK of investment.
typically at 12–13% of the total loan portfolio. Delinquent financial institutions are penalised in terms of covering additional losses and are withdrawn from the list of approved lenders typically.
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