STUDY REVEALED POTENTIAL FOR INCREASING SMALL AND MEDIUM-SIZED ENTERPRISE FINANCING

More targeted state aid measures, the reduction of administrative burden for small and medium-sized enterprises (SMEs), more information on alternative financing opportunities and enhanced financial reporting of enterprises – these recommendations and measures of their implementation have been presented by the Bank of Lithuania and the Lithuanian competition authority Konkurencijos taryba after their jointly conducted study.

The study revealed that over the period of analysis the financing opportunities were mainly impaired for SMEs with a higher risk, fewer employees, as well as for those which did not have long-term relationships with financial institutions or operated in the real estate, construction and transport sectors. Furthermore, the study confirmed the assumption that very small enterprises are significantly less likely to obtain a loan in comparison to small and medium-sized enterprises. A relatively lower risk that banks operating in Lithuania want to incur can also contribute to this problem.

After holding public consultations, the Bank of Lithuania and Konkurencijos taryba adopted the following recommendations aimed at improving the SMEs’ financing:

1. More targeted state aid and more efficient insolvency processes. It is proposed to expand state aid measures which would decrease or eliminate the need for additional collateral while borrowing, to review the granting of state guarantees together with financial institutions and focus state aid on enterprises with a medium or higher risk and on very small enterprises. Besides, it is recommended to assess the possibility of adapting the insolvency procedures taking into account the peculiarities of very small enterprises, in order to speed up the insolvency proceedings.

2. The reduction of administrative burden for SMEs and the increase of financial literacy of enterprises. These proposals are aimed at ensuring that documentation requirements do not become an obstacle to enterprises in obtaining financing. For example, it is proposed to avoid a repeated collection of information from enterprises, where such information is already available at state registers. It is also proposed to increase a clarity of state aid application forms and to apply a one-stop-shop principle in the administration of state aid. The financial literacy of SMEs could be increased through information, consultation and training measures, for example, by organising seminars, involving financial institutions and coordinating the initiatives of different institutions in a more effective way.

3. More information on alternative financing opportunities for enterprises. It is proposed to prepare and actively distribute information to SMEs on the variety and the appropriate choice of financing sources, as well as to better coordinate information provided by different institutions. It is particularly important to ensure that SMEs, the applications of which are rejected, receive information on other possible funders. This could be achieved by reaching an agreement with market players so that the company which has not received funding, gets information on other sources of financing.

4. Enhanced financial reporting of enterprises. It is proposed to create incentives for SMEs to submit financial reports by consistently informing them about the importance of submitting financial reports and potential consequences for failure to do so. It is also sought to enhance the control of compliance with the regulation of enterprises having negative capital.

The Bank of Lithuania will develop an action plan for the period up to 2025, according to which it will implement recommendations falling within its competence and conduct assessments which would provide more information on how to implement other recommendations. The Bank of Lithuania is planning to contribute to the preparation and dissemination of information on SME funders, as well as to assess the possibilities to provide access to the loan risk database for non-credit institutions. It will also ensure the continued implementation of such initiatives as the market newcomers' programme, strengthening of the credit union sector and the development of the capital market.

Moreover, in cooperation with other institutions, having agreed on the priority directions, the Bank of Lithuania and Konkurencijos taryba will implement priority recommendations falling within the competence of other institutions. The Bank of Lithuania intends to monitor the progress of the implementation of the aforementioned recommendations and to actively cooperate with other institutions in order to achieve the best possible progress in improving the SMEs’ financing environment.