The Blog

Musings on corporate finance, fund raising, debt capital and other matters

Picture by Stein Egil Liland (
Picture by Stein Egil Liland (

Small and medium-sized enterprises (SMEs) play a vital role in the economy of Scandinavia, accounting for a significant portion of the region's GDP and employment. However, despite their importance, SMEs in Scandinavia challenges when it comes to funding their operations and growth.

Whilst the region has traditionally enjoyed a very strong ecosystem of business angels and venture capitalists providing equity, SMEs still struggle to access debt. Indeed, traditional banks have been known to be cautious when it comes to lending to smaller businesses, and this is particularly true for those that are in the early stages of growth or are embarking on new initiatives, such as an acquisition. Entrepreneurs and their long-term investors are thus often left with the difficult decision of giving up ownership to fund growth.

"Raising equity funding is a great way for us to grow our business, but it's not without its challenges," explained the founder of a Danish SME. "Giving up a portion of ownership in the company can be difficult, but it's necessary to bring in the capital we need to expand."

Solutions such as peer-to-peer lending, funding platforms or revenue-based financing have helped to diversify the funding tools available to CEOs and CFOs, allowing many businesses to flourish. Unfortunately, these types of instruments are either short-dated (often no longer than 12 months) or not available at scale (crowdsourcing several million euros of debt is unlikely).

For those SMEs fortunate enough to have secured bank financing, the covenant that come with it can be a considerable burden. Principal repayments redirect cash better spent on growth creating an expensive trade-off. If growth plans don’t work out due to unforeseen events, the risk of not meeting strict profitability or debt service covenants often lead to difficult discussions.

Fortunately, there are solutions which can help overcome such issues. Alternative lenders have been stepping in to fill the empty space left by banks across the US and Europe since the 2008 financial crisis and are catching up in Scandinavia as well.

Martin Nowicki, Associate Partner at Altimapa Capital commented that “From our recent conversations with a dozen of private debt funds we noted a strong interest in the region, praise for its entrepreneurial culture, innovation, and political stability. Many investors typically focused on Western Europe would be keen to diversify their portfolios with Scandinavian holdings.”. Martin recently joined Altimapa to cover the Nordic region.

Often being structured as private funds, these specialist institutional investors have more freedom to decide what level of risk they are comfortable to take on. In practice, this can mean more favorable repayment schedules, more kinds of eligible collateral or more generous use of proceeds. This can prove very helpful to businesses considering an expansion into a new market or the acquisition of another company. Venture and growth lenders, for example, understand the cash flow challenges faced by young, growing companies and their loans are increasingly seen complementing traditional equity financing.

Despite these challenges, SMEs in Scandinavia continue to thrive. After all, the region is home to many successful and innovative companies which, in some ways have disrupted their respective sectors. With the support of debt from alternative lenders, entrepreneurs and their equity investors will perhaps be able to enjoy the rewards of their ownership to a greater extent.