Banque de France Bulletin

How do intermediate-sized enterprises finance themselves?

Published on 6 November 2018
Authors : Adrien Boileau , Benjamin Bureau

Bulletin n°220, article 1. The financing structure of intermediate-sized enterprises (ISEs) has evolved in recent years. The share of bank credit has decreased, while the shares of bond and equity financing have increased. In addition, ISEs have relatively few difficulties in financing themselves. In particular, we note that: (i) their requests for bank loans have mostly been satisfied; (ii) they have taken full advantage of the decline in interest rates; (iii) they have access to various market financing instruments and (iv) overall, their repayment capacity appears to be under control.

Image Breakdown of bank, bond and leasing debts Description The graph proposes the breakdown of bank, bond and leasing debts in 2006 and 2016. 1. SMEs : - in 2006: bank credit: 86%; leasing: 12%; bond and similar debts: 2% - in 2016: bank credit: 83%; leasing: 10%; bond and similar debts: 7%. 2. ISEs: - in 2006: bank credit: 81%; leasing: 4%; bond and similar debts: 15%. - in 2016: bank credit: 68%; leasing: 2%; bond and similar debts: 29%. 3. Large enterprises:  - in 2006: lbank credit: 39%; leasing: 2%; bond and similar debts: 60%. - in 2016: bank credit: 29%; leasing: 1%; bond and similar debts: 70%. Note: Non-financial enterprises as defined in the Economic Modernisation Act. The leasing component is equal to lease commitments excluding the ad hoc share of financial expenses. Source: Banque de France, FIBEN database, May 2018. Key figures: EUR 277.6 billion: total amount of loans drawn by intermediate-sized enterprises from credit institutions at end-June 2018. 96%: share of intermediate-sized enterprises that obtained all the investment loans requested in 2017. -40 basis points: average bank interest rate spread for intermediate-sized enterprises compared with SMEs (excluding microenterprises) over the period 2006-2017. 60%: share of intermediate-sized enterprises in the number of Euro Private Placements (Euro PP) issued over the period 2012-2016.

Existing studies, in particular those of INSEE, provide a fairly fine description of the characteristics of intermediate-sized enterprises (ISEs) and their weight in the French economy (see Appendix 1 for a summary). The objective of this study is to complete this presentation by focusing on the more specific issue of funding.

Unless otherwise stated, company sizes are defined according to the 2008 Economic Modernisation Act. The construction of the different categories of enterprises is explained in Appendix 2. It should be noted that ISEs do not belong to the category of small and medium-sized enterprises (SMEs). They employ less than 5,000 people and have an annual turnover of less than EUR 1.5 billion or a balance sheet total of less than EUR 2 billion. Furthermore, within the framework of the Economic Modernisation Act, they may be composed of one or more legal units organised into groups. According to INSEE, there were close to 5,800 ISEs in France in 2015 (see Appendix 1).

1. Intermediate-sized enterprises’ main sources of financing

Equity financing is increasing

How do intermediate-sized enterprises finance themselves? To answer this question, a first approach consists in analysing the liabilities side of ISEs’ balance sheets, which at any given time list all of their sources of financing. Table 1 thus presents the aggregate liability structure of all ISEs recorded in the FIBEN database, with a distinction made between equity and debt.

In practice, the construction of such a table requires making ad hoc assumptions to classify certain liabilities in one category rather than another. The results should therefore be interpreted with caution. Table 1 shows the changes in the liability structure of intermediate- sized enterprises between 2006, i.e. before the crisis, and 2016. It also compares ISEs with SMEs and large companies.

What are the main trends? First, the weight of equity in ISEs’ total liabilities has increased. It rose from 36% in 2006 to 39% in 2016 (up 3 percentage points). The increase is more marked for SMEs (up 7 percentage points) and SMEs and ISEs have converged towards large companies’capital structure, with the weight of equity being identical for all company sizes in 2016.

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