Bridging the Finance Gap for Women Entrepreneurs

33. Sweden: Policy insights on how to target interventions effectively

Professor Carin Holmquist
Stockholm School of Economics

Background

Sweden, as many highly developed countries, tends to have a rather low level of entrepreneurship activity. The GEM studies, see for instance (Thulin et al., 2023[1]) or (Hill et al., 2024[2]), have also consistently shown that Sweden ranks high on opportunity-based entrepreneurship and low on necessity-driven entrepreneurship. There are several reasons for this: 1) the highly developed social security system that favours employment rather than self-employment and entrepreneurship, 2) the high emphasis on innovation and technology that favours growth of large tech-based firms (Sweden also ranks high in GEM in degree of intrapreneurship, i.e. being entrepreneurial while being employed for a firm that is not your own) and 3) Swedish policies on entrepreneurship focus more on firm level than on individual entrepreneurs. For example, there is no government body with an explicit focus on SMEs, instead a “mainstream” policy stance directed at innovation, technology and sustainability is used. Sweden also features a relatively small national market, with a population of approximately 10.5 million, over a large geographical area.

Despite the governments’ more horizontal approach which supports the business environment at large and is more conducive on innovation and technology the majority of Sweden’s 1.2 million firms are small – 75% are solo entrepreneurships and only 0.1% have more than 250 employees. Both women and men are mostly active in the services and trade sectors and work in SMEs – women even more so. The value added/employee is generally quite low in services and trade (around SKR 0.5 million). Women entrepreneurs primarily operate small and non-high-profit firms. The ratio of women’s entrepreneurship to men’s has not changed much over the past 45 years. In 1980 women entrepreneurs constituted 25% of the total (Sundin and Holmquist, 1989[3]) in 2023; this figure is estimated to be close to 30%, i.e. the growth of women’s entrepreneurship has increased only marginally. In terms of policy measures, Sweden has long worked with mainstream perspectives but still there has been around 20 initiatives specifically directed to women’s entrepreneurship. Only four of these have been quite large, including the national “Programme to promote women’s entrepreneurship 2007-09” with an annual budget of SKR 100 million. Further details are outlined in a new report ordered from the Ministry of Climate and Enterprise (Tillväxtverket, 2023[4]). The report led to a newly decided programme launched by the government (approximately SKR 24 million). This new three-year programme focuses on young women’s entrepreneurship, public procurement rules affecting women, statistics on women’s firm ownership, women’s access to private and public funding and events linked to International Women’s Day 2024-2026 (Government decision (Regeringsbeslut) KN 2024/00614).

The Swedish mainstream public policy, as well as private initiatives, has so far not specifically addressed capital needs of women entrepreneurs. Limited attention has, however, been given to certain aspects of financing in the case of women entrepreneurs (i.e. microfinancing and venture capital issues).

Policy issue: SMEs’ access to finance

Public policy has to some degree acknowledged that women entrepreneurs are less likely to receive external funding. This is long-established in the research literature (see for instance (Coleman, 2000[5])), and there are a range of views on the factors behind this gender gap. One reason that is put forth is that women and men operate firms in different sectors which means that the financial needs and conditions become different. There are also differences in financial aspects of firms due to the entrepreneurs’ motivations (e.g. necessity- vs. opportunity-driven start-ups). Nonetheless, access to financing is essential for all firms and hence, public policy should ensure that women entrepreneurs can access finance on the same terms as men entrepreneurs. This demands that data on (at least) public funding (e.g. loans, guarantees, grants etc.) are fully collected by gender, but this is not the case. In Sweden for instance, ALMI used to have statistics on the share of applications as well as the share of granted financing for women and men but now only summary data on granted financing is available (women received 27% of loans and 20% of risk capital in 2023).

The issues that policy makers in Sweden have recently dealt with concern two specific financial situations: 1) financing of start-up for women entrepreneurs with needs for less funding (e.g. microfinance, social entrepreneurship projects) and 2) growth financing demanding large investments (e.g. venture capital funding). The challenges in these situations are generally quite different. For necessity-based women entrepreneurs, a general lack of financial, social and human capital constitutes a challenge while the obstacle for the high-growth women entrepreneurs is the skewed access to venture capital (Lassébie et al., 2019[6]; Brush et al., 2004[7]). In Sweden, less than 1% of venture capital currently goes to women entrepreneurs. These two financial situations are now on the agenda, and there is awareness of the challenges for women entrepreneurs in these situations (i.e. both situations were topics for the roundtable discussions the Ministry of Climate and Enterprise held in 2023 in preparation for the programme to support women). There are also some active measures directed towards these two situations, as Tillväxtverket’s programme for immigrant women or the venture capital firms’ active work to increase the share of women entrepreneur firms in their portfolios (as witnessed by several VC firms during the roundtable discussions).

Important as these two financial situations are, they do not represent the bulk of day-to day financial needs of women entrepreneurs. The majority of women entrepreneurs run firms that are neither purely necessity-based nor high-growth firms. Most women entrepreneurs in Sweden as well as globally (GEM, 2023[8]) run SMEs in the services or trade sectors – mostly personnel intensive with low value added/employee and low margins. The financial needs of this group are neglected. Most entrepreneurs rely heavily on specific sources of capital – personal capital, equity and bank financing. Data from the Swedish bankers’ association (Swedish Bankers Association, 2024[9]) shows that almost half of the financing of firms comes from bank loans, a quarter comes from the securities markets and only a small fraction from venture capital firms.

As the entrepreneurs’ association Företagarna shows that SMEs have problems being granted external capital (Företagarna, 2023[10]). The report cites statistics that lending to large firms, and even to the household sector, is much bigger than to SMEs. The report points to three reasons: high demands on personal collateral,1 high costs (e.g. interest, fees etc.) and lenders do not understand the business. The report also shows that the skewed distribution between financing to large firms relative to SMEs is increasing over time. SMEs report that they mostly finance firm investments by using firm’s liquidity and/or current equity (80%), buying with credit (15%), loan from owner/family/friends (13%), new bank loan (11%), and new equity (10%). The smaller the firm the higher the reliance on equity and personal capital. There is no data on possible differences between genders, but most likely women are even more dependent on financing by means from their firms or from their personal sources given that women tend to have smaller firms and also rely on internal capital for growth.

These financial challenges for this majority of women entrepreneurs are obstacles for start-up, notably for day-to-day running of a firm and for firm growth. However, these obstacles are not currently high on the policy agenda (nor on research agendas). Using personal living quarters as collateral to acquire a bank loan to start a firm exposes the individual to a situation of double risk – firm risk and personal risk. A practical example of such a recent challenge for a SME in the retail sector was an increase in the employer’s tax for young people (it was lowered during the COVID-19 pandemic) at the same time energy prices and commercial rents increased substantially. For many SME retailers, this has led to an increase in operating costs of more than 20% – at a time where demand was decreasing.

Another challenge is that SMEs often have to accept that large firm suppliers and customers use SMEs as “banks” by demanding short credit times when SMEs buy and long credit times when SMEs sell. Challenges such as necessity of heavy personal collateral to get loans, day-to-day liquidity and costs of financing (e.g. interest, fees, payment time deficits), all make it harder for the majority of women entrepreneurs to start a firm, to maintain and grow it. This in turn negatively impacts women’s entrepreneurship; for instance, women entrepreneurs are known to not only have lower entrance rates into entrepreneurship but also to often have higher exit rates (GEM, 2023[8]).

Conclusions

Overall, access to capital for women entrepreneurs seems to be even harder than for men. Several researchers argue that neglecting gender issues in public policy (i.e. not taking a gender perspective) leads to a negative gender bias (Coleman et al., 2019[11]). It can be argued that the neglect of the conditions for financing for SMEs, especially in the services and trade sectors, leads to a gender bias. Therefore, policy could pay more attention to the financing of entrepreneurs in these sectors, which will likely lead to better financial conditions for a large part of women entrepreneurs.

References

[7] Brush, C. et al. (2004), Clearing the hurdles: Women building high-growth businesses, FT/Prentice Hall, Upper Saddle River, NJ.

[5] Coleman, S. (2000), “Access to capital and terms of credit: A comparison of men- and women- owned small businesses”, Journal of Small Business Management, Vol. 38/3, pp. 37-52.

[11] Coleman, S. et al. (2019), “Policy Support for Women Entrepreneurs’ Access to Financial Capital: Evidence from Canada, Germany, Ireland, Norway, and the United States”, Journal of Small Business Management, Vol. 57/sup2, pp. 296-322, https://doi.org/10.1111/jsbm.12473.

[10] Företagarna (2023), Finansieringsrapport 2023, https://www.foretagarna.se/politik-paverkan/rapporter/2023/finansieringsrapporten-2023/ (accessed on 24 March 2024).

[8] GEM (2023), Global Entrepreneurship Monitor 2022/23, Women’s Entrepreneurship Report, https://www.gemconsortium.org/reports/womens-entrepreneurship (accessed on 24 March 2024).

[2] Hill, S. et al. (2024), GEM 2023/2024 Global Report – 25 years and growing, Global Entrepreneurship Monitor, https://www.gemconsortium.org/reports/latest-global-report (accessed on 24 March 2024).

[6] Lassébie, J. et al. (2019), “Levelling the playing field : Dissecting the gender gap in the funding of start-ups”, OECD Science Technology and Industry Policy Paper, No. 73, OECD Publishing, Paris, https://doi.org/10.1787/23074957.

[3] Sundin, E. and C. Holmquist (1989), Kvinnor som företagare: osynlighet, mångfald, anpassning: en studie, https://liu.diva-portal.org/smash/record.jsf?pid=diva2%3A930193&dswid=5077 (accessed on 24 March 2024).

[9] Swedish Bankers Association (2024), Hur ser företagens tillgång till kapital ut?, https://www.swedishbankers.se/bankfokus/bankfokus-nr-1-2020/hur-ser-foretagens-tillgang-till-kapital-ut/ (accessed on 29 March 2024).

[1] Thulin, P. et al. (2023), Entreprenörskap i Sverige: nationell GEM-rapport 2023, Entreprenörskapsforum, https://entreprenorskapsforum.se/forskning/gem-%E2%80%93-global-entrepreneurship-monitor/#:~:text=%C3%85rets%20nationella%20GEM%2Drapport%20visar,p%C3%A5%20tidigt%20stadie%20(TEA). (accessed on 1 October 2024).

[4] Tillväxtverket (2023), Uppdrag om kvinnors företagande, KN2023/02624, Tillväxtverket Dnr Ä 2023-1671, https://tillvaxtverket.se/download/18.3469032218e5fb1783c282fb/1712664324746/KN2023_02624%20Slutrapport%20uppdrag%20om%20kvinnors%20f%C3%B6retagande%201.0.pdf (accessed on 1 October 2024).

Note

← 1.  Incidentally, the BASEL framework that impacts bank policy on securities may play a role here since risk management for banks have changed to being based on market value and hence favours physical assets.