A new effect of the corona crisis: the average amount of financing has tripled
The international corona crisis affects the financing needs of increasingly large companies. The average size of funding granted by Finnvera to companies in June was approximately EUR 300,000, a triple figure compared to April. The demand for larger financing will increase in autumn, forecasts Finnvera’s CEO Pauli Heikkilä.
Heikkilä cautions against thinking that the companies no longer face difficulties now that Finland has succeeded in controlling the spreading of the virus.
Heikkilä says that the need for external funding has now clearly shifted towards medium enterprises and even a few large enterprises. During the first wave of the corona crisis, the first companies to suffer were the SMEs in the service sector.
Companies need financing especially for working capital, i.e. to cover their own running costs. New investments are scarce, but several investments are still in progress.
"Our new financing decisions exceeded EUR 1 billion already in June, whereas in normal circumstances that only happens towards the end of the year", describes Heikkilä.
Finnvera has made 6,000 new financing decisions since the start of the year. At the same time, 10,000 existing loans have been restructured.
Finnvera guarantees 80 per cent of the value of the loan granted by a bank, and the total liabilities may not exceed EUR 100 million. In special cases, SMEs might be entitled to a guarantee of 90 per cent.
"The financing needs have clearly exceeded our forecasts. The need has been even greater than during the financial crisis. Corona has several features that distinguish it from other crises, since it affects almost everybody and appeared unimaginably quickly", says Heikkilä.
The industry is feeling the shock
The European Commission forecasted that Finland’s economy will shrink by more than six per cent this year. Next year, we would see a growth of less than three per cent. These growth figures are modest, since the forecast indicates an average of more than six per cent of growth for the economies of the eurozone.
Finland’s exports consist mostly of investment goods, the demand for which might remain low for a long time, states Heikkilä. The CEO’s assessment gets support from statistics. New orders in the industry have been falling for months compared to the year-on-year situation.
"Forecasting the autumn situation is difficult, but it is likely that the industry will be at the receiving end of any upcoming shocks. Growth is limited by the composition of Finland’s exports. On the other hand, I remain optimistic. When the consumers’ trust returns, consumption might take off in a timespan of weeks", says Heikkilä.
Finnvera prepares for the autumn by customising its existing financing products to be a an even better match to the needs of companies. One of the products is Growth Loan.
Growth Loan is a junior loan, comparable to the company’s equity. Growth Loan increases the company’s equity ratio to a level that enables a bank to be engaged as a provider of financing.
"The demand for junior loans will increase since companies must strengthen their own equities."
A company’s own equity must be in good shape for example in corporate acquisitions. In addition to corporate reorganisations, the intended purpose of a Growth Loan could be an investment or working capital financing required by growth.
"The valuations of companies have fallen, which means we will see acquisitions in autumn. It is very likely that major euro-denominated acquisitions will take place towards the end of the year", predicts Heikkilä.
Pauli Heikkilä, CEO, Finnvera, tel. +358 29 460 2400