

Switzerland is a country whose economy is strongly based on small and medium-sized enterprises (SMEs). Over 591,000 SMEs make up 99.7% of Swiss companies and employ two-thirds of the population. What is slightly surprising, however, is that at 32%, relatively few of the Swiss SMEs are supported by bank loans compared to neighboring countries (Fig. 1).
Figure 1. Share of SMEs with bank financing by country 2021, source: EZB, 2021
Not all SMEs are the same, and a study conducted by the Institute of Financial Services Zug (IFZ) in 2021 showed that the size of a company in Switzerland has a significant influence on the rate of financing through bank loans. Figure 2 shows this breakdown.
Figure 2. Share of Swiss SMEs with bank financing in 2021 by size, source: IFZ, EZB, 2021 (Statistical sample size: 2,712 SMEs).
It is predominantly the larger companies that have existing bank loans. Especially for small companies with 1-9 employees, it is only 27% of the companies. Another important factor discovered by the study is the age of the company. Figure 3 shows the same data set broken down by year of establishment.
Figure 3. Proportion of Swiss SMEs with bank financing in 2021 by year of foundation, source: IFZ, ECB, 2021 (Statistical sample size: 2,712 SMEs).
One can speculate about the reasons for these results. It makes sense, for example, that smaller companies often need less capital, and therefore this can often be financed through other means (or privately). Likewise, younger companies have had less time to get to a point where bank financing might be needed. On the other hand, the question remains open whether these reasons can explain the entire difference.
The IFZ asked SMEs in Switzerland for reasons as part of their study. 1,694 of the 2,712 SMEs listed above (68%) had no bank financing (Covid-19 loans excluded). It turned out that 66% of the SMEs, that do not have existing financing, do not need any.
What interested us more, however, were the reasons of SMEs that do not have a bank loan but need or want one. We see the reasons for this group in Figure 4.
Figure 4. Reasons against bank financing if such is necessary, Swiss SMEs 2021, source: IFZ, EZB, 2021.
If we now look at this result from the perspective of the crowdlending market, two of the reasons in particular deserve attention: the interest rates, which are too high, and the cumbersome application process. These two reasons account for about 37% of the reasons why no financing was provided through bank loans. Crowdlending, online, can also offer more attractive interest rates for SMEs by directly connecting borrowers and lenders. Furthermore, the application process is digitalized and much faster or easier than with traditional sources. Especially smaller SMEs that do not have separate departments for financial matters can benefit greatly from this simplification.
The study discovered, in addition to the data in Figure 2, that the proportion of companies with 1-9 employees that have existing bank financing has decreased slightly from the last study in 2016. This suggests that this market gap could widen in the coming years. In recent years, the internet has had the overall effect of shrinking the average size of companies. More and more smaller companies are merging, cutting off small pieces of larger companies, and thereby opening up new markets. The size of companies generally depends on how expensive the transaction costs are for utilizing external services and goods. If these are high, then it is more likely that these parts of the business will be handled internally and the company will grow as a result. So, we see how the internet, by reducing these costs, can lead to a reduction in the size of the company.
Emblematic of this is the crowdlending market, which takes some of the business away from the banks. In particular, smaller loans for smaller companies fit ideally into this model. Crowd4Cash, as a provider of digital SME loans, also manages to process smaller amounts profitably through a high degree of automation. For the reasons mentioned above, we can be optimistic that this market and the market share of crowdlending will continue to grow in the coming years.