Download ACCESS TO FINANCE OF CROATIAN SMEs

ACCESS TO FINANCE OF CROATIAN SMEs
Abstract
Access to finance can be critical to business growth and success, particularly for start-up enterprises. It can
increase the speed at which company grows, fund additional product development, or simply provide enough
capital to run the business until the break-even point is reached. Large companies with an established
performance record and assets have an easier access obtaining finance then small companies due to their
unproven management and few tangible assets that they posses. Small and medium sized enterprises mostly
prefer debt in contrast to equity finance because equity funds are usually more difficult and more expensive to
obtain, also its realization generally is not quick enough. Therefore, the purpose of the survey conducted for this
paper is to examine current market conditions faced by Croatian small and medium sized enterprises in accessing
finance and to determine availability and usage of equity finance in Croatian small and medium sized
enterprises, as a way to finance their business activity.
Marko Kolakovic, University of Zagreb, Croatia
Bojan Moric Milovanovic, University of Zagreb, Croatia
Mladen Turuk, University of Zagreb, Croatia
Marko Kolakovic, Ph. D.
Associate Professor
UNIVERSITY OF ZAGREB
Graduate School of Economics & Business
10000 Zagreb
J. F. Kennedy 6,
Croatia
tel. +385 1 238 3245
fax. +385 1 233 5633
e-mail [email protected]
Bojan Moric Milovanovic, B. Sc.
Assistant
UNIVERSITY OF ZAGREB
Graduate School of Economics & Business
10000 Zagreb
J. F. Kennedy 6,
Croatia
tel. +385 1 238 3245fax. +385 1 233 5633
e-mail [email protected]
Mladen Turuk, B. Sc.
UNIVERSITY OF ZAGREB
Graduate School of Economics & Business
10000 Zagreb
J. F. Kennedy 6,
Croatia
tel. +385 1 238 3245
fax. +385 1 233 5633
e-mail [email protected]
ACCESS TO FINANCE OF CROATIAN SMEs
INTRODUCTION
Small businesses are extremely important and certainly most dynamic segment of Croatian economy. Its
share of the total number of companies in Croatia is 99.4% and they account for 64.8% of the total number of
employed persons in Croatia. Small businesses are one of the most important impetuses of the overall economic
development which stimulates private ownership and entrepreneurship, employment growth and significantly
contributes to increase of production and exports. Enterprises in Croatia are by size divided on small (0-50
employees), medium-sized (50-250 employees) and large (250+ employees) and by the owners’ structure on
private, mixed and public. Access to capital and finance is a key factor in the future success and sustainability of
SMEs. The purpose of the survey conducted for this paper was to examine current conditions faced by Croatian
small and medium-sized enterprises (SMEs) in accessing finance and to determine availability of equity finance,
as a way to finance their business activity. Although banks are the main providers of finance to small and
medium-sized businesses, there are other sources, such as equity finance from venture capitalists and other
private investors. Enterprises with less than 250 employees were selected by random sampling method from the
Croatian business entity register. A total of 103 out of 500 surveyed enterprises responded, which gives the
response rate of 20,6 percent. Survey had 15 questions, mostly about past experience in raising finance/equity,
such as sources of finance, amount of capital required and effects of finance/equity shortage. Second part of the
survey consisted of present and future finance/equity requirements, such as difficulties in raising finance, amount
of finance/equity requirements in the next 3 years, expected sources and expected usage of finance. It should be
noted that in the case of questions where respondents had the multiple choice, overall response could be higher
than 103 responses.
I.
PAST EXPERIENCE IN RAISING FINANCE/EQUITY
85 percent of enterprises (88 out of 103 enterprises) that responded to the survey attempted to raise
finance/equity. Table 1 shows the most common sources of finance/equity of Croatian SMEs. Sources vary from
family and friends, state grants, leasing, banks, to other private investors and venture capital funds. Many of
them have attempted to raise finance/equity from more than one source, resulting in more than 88 responses.
Bank’s loans, including mortgage and overdrafts, as well as leasing companies, make about 70 percent of
attempted finance/equity sources. If we add state grants, we have about 87 percent of finance/equity sources of
Croatian SMEs. Venture capital funds and other private investors interested in equity finance are not common,
making each only about 2 percent of attempted sources of finance.
Table 1 – Sources of finance/equity of Croatian SMEs
Source
No. of enterprises
Family and friends
12
State grants
32
Leasing
49
Bank loan/mortgage/overdraft
79
Other private investors
4
Venture capital
3
Other
5
Source: Authors
%
6
17
27
43
2
2
3
Family and friends, making only about 6 percent of all attempted finance/equity sources, are mostly
used in start-up phase. State grants are only available for enterprises that have previously met the requirements
from Ministry of economy, labor and entrepreneurship or other state institutions in charge for small and mediumsized enterprises, regarding the program they applied for. As 17 percent of small and medium-sized that
responded on the survey applied for this type of subventions, this presents third main source of finance of
Croatian SMEs. An advantage of this kind of financing is that if an enterprise obtained funds from a government
body, it often has positive effects on other finance providers, in case it needs additional funds. However, this
kind of financing is highly competitive, with limited funds available. Government loans often require clear
business and marketing plans, as well as completion of various application forms. This process usually takes
some time as well.
Though banks make about 43 percent of finance sources (if we add leasing companies, this number goes
up to 70 percent), they still have conservative lending policies. When deciding whether to finance an enterprise,
financial institution has to find out if a business has the capacity to repay the debt or has a repayment track
record. Highly likely, it is necessary to provide the security or collateral support, which is the most difficult for
enterprises in their start-up or the earliest development phases, because such enterprises usually do not posses
assets worth at least as required amount of finance. Proof of further business opportunities is also a must. In
order to finance a business, bank or other financial institutions require wide range of financial information and
reports on the enterprise. This includes profit and loss statements and balance sheets, current year cash flow
projections, cash flow projections for the term of the debt and assets that can serve as collateral in order to secure
the investment.
From the lender’s point of view, conservative policy towards SMEs is mainly a reason of their low
levels of equity, unclear business plan or financial projections, lack of financial strength, poor financial
management and reporting system, insufficient reinvestment of profits or diversion of their funds into non-core
activities. The longer the enterprise is in operation and has some assets that can be used as a security, easier is to
obtain larger amounts of finance at lower interest rates.
Though equity finance may be important for maintaining capital structure, particularly at the start-up
and early expansion stages, it is not common for Croatian enterprises. Ideal enterprise would be the one that has
first-rate product or service with clear business and marketing plan and exit strategy. Equity investors will expect
higher return on their investments, and sometimes they want to participate in business decisions. Venture capital
and other private investors make only about 2 percent each. The main reason is not enough developed financial
market, where bank financing strongly dominates. Not less important, the investment process of the venture
capital fund can take up to few months, which might sometimes be of a crucial importance.
Table 2 shows number of enterprises by their development stage that attempted to raise or successfully
raised all the finance/equity required. Enterprises were asked to divide themselves into one of the categories
(start-up, development phase, steadily growing, considering expansion, consistent sales but not growing, or
decreasing sales). There were 14 percent of enterprises that see themselves in the development phase, while
almost 60 percent declared themselves as steadily growing or have considering expansion. Consistent, but not
growing sales characterizes 22 percent of surveyed enterprises, while only 4 percent have decreasing sales. More
than 4/5 of them succeeded to raise all the finance/equity required. However, this number varies from 62 percent
to 100 percent, depending on the development stage. As expected, enterprises that are in their development
phase, not yet completely established on the market, had the most problems in raising the finance/equity required
(only 62 percent succeeded). In average, 68 percent of enterprises that have consistent but not growing sales and
enterprises with decreasing sales have succeeded in raising all of the finance/equity required. Interestingly, 80
percent of enterprises that have overcome development phase and are steadily growing, have succeeded in
raising all the funds, while all enterprises with considering expansion have managed to raise all of the
finance/equity required.
Table 2 – Croatian SMEs that attempted to raise, or raised finance/equity by development stage
No. of enterprises that
No. of firms that
% of firms that
No. of
Development stage
attempted to raise
raised all of the
raised all of the
enterprises
finance/equity
finance required finance required
Start-up
0
0
0
0
Development phase
15
13
8
62
Steadily growing
45
41
33
80
Considering expansion
16
15
15
100
Consistent sales but not
23
16
11
69
growing
Decreasing sales
4
3
2
67
Total
103
88
69
78
Source: Authors
Debt finance is essentially a loan, which has to be repaid with interest, and the borrower bears most of
the risk if the business fails. Equity finance involves an investor putting funds into a business with the
expectation of future earnings. They therefore share the risk, and in return gain some ownership, and possibly
some control of the business.
Enterprises that have tried to raise or have recently raised finance/equity are shown in Table 3.
Enterprises were asked to specify the amount of finance/equity they have recently raised. Although smaller firms
tend to rely much more on bank sources of finance, such as loans and overdrafts, and are less exposed to other
sources mostly because they are not quickly available, the lowest rate is observed in the €0 - €100.000 category,
with only 65 percent of respondents being able to all the finance/equity required. Though banks usually offer the
lowest interest rates available on the market, they tend to be more conservative in their lending policies,
requiring higher collateral values or some asset to serve as a security. Unfortunately, these conservative lending
policy is surely one of the biggest constrains in access to finance of Croatian small and medium-sized enterprises
that are in their start-up or early development phase.
Table 3 – Enterprises that raised finance/equity by amount categories
Amount of the
finance/equity required
€0 - €100.000
€100.001 – €250.000
€250.001 – €500.000
€500.001 – €1.000.000
€1.000.001 – €2.000.000
€2.000.000+
Total
Source: Authors
No. of
enterprises
No. of firms that raised all of
the finance/equity required
23
15
15
17
8
10
88
15
13
12
14
7
8
69
% of firms that raised all
of the finance/equity
required
65
87
80
82
88
80
78
Amount of finance/equity attempted to be raised by Croatian small and medium-sized enterprises by
their development stage categories is presented in Table 4. Interestingly, every fifth enterprise in its development
phase attempted to raise up to €100.000 while slightly more than 50 percent attempted to raise up to €500.000.
According to the table below, 34 percent of steadily growing enterprises attempted to raise up to €100.000. As
44 percent of enterprises attempted to raise €100.001 to €250.000 and €500.001 to €1.000.000 (22 percent each),
it means that more than 90 percent of steadily growing enterprises attempted to raise up to €1.000.000 of finance
or equity (about 70 percent attempted to raise up to €500.000). All of the surveyed enterprises with considering
expansion tried to raise finance or equity of more than €250.000. All enterprises with decreasing sales attempted
to raise finance/equity only up to €100.000.
Table 4 – Amount of finance/equity attempted to be raised by Croatian SMEs by development stage categories
Development
€0€100.001€250.001€500.001€1.000.000€2.000.000+
∑
stage
€100.000
€250.000
€500.000
€1.000.000
€2.000.000
Start-up
0
0
0
0
0
0
0
Development
3
2
2
2
2
2
13
phase
Steadily
14
9
5
9
2
2
41
growing
Considering
0
0
6
2
3
4
15
expansion
Consistent sales
4
4
1
4
1
2
16
but not growing
Decreasing
3
0
0
0
0
0
3
Sales
Total number of
enterprises that
attempted to
24
15
14
17
8
10
88
raise
finance/equity
Source: Authors
Enterprises unable to raise all the finance/equity required were asked in what way it affected their
further plans (Table 5). Although 88 out of 103 enterprises attempted to raise capital, 69 of them succeeded in
raising all the finance/equity required for their further financing. Enterprises were asked for best answer that
results from finance/equity shortage. The greatest effect of finance/equity shortage, as indicated by the surveyed
enterprises, was working capital and cash flow constraints with 27 percent. This is followed by being dependent
on bank finance with 17 percent, being unable to invest and update their equipment and technology and being
unable to finance purchase of land and buildings with 15 percent each. Being unable to invest in marketing and
advertising was a problem that 10 percent of enterprises faced with, while only 7 percent of surveyed enterprises
had problems with financing their research and development and hiring new employees. Enterprises which failed
to raise all of the finance/equity required were asked to indicate main reasons for this. As a reason for not being
able to raise all the finance/equity required, enterprises stated various problems out of which high collateral
value and being uninteresting for investors were the most common reasons. A smaller percentage of surveyed
enterprises were declared high-risk and therefore unable to raise all the capital required. None of the enterprises
stated unclear business plan or lack of track records as reasons for being unable to raise all the finance/equity
required.
Table 5 – Effects of finance/equity shortage of Croatian SMEs
Consequences
No. of enterprises
Unable to finance R&D
3
Unable to update technology/equipment
6
Unable to finance purchase of land and
6
buildings
Unable to invest in marketing and advertising
4
Unable to hire new employees
3
Working capital and cash flow constraints
11
Dependent on bank finance
7
Other
1
Total number of enterprises
19
Source: Authors
II.
%
7
15
15
10
7
27
17
2
100
PRESENT AND FUTURE FINANCE/EQUITY REQUIREMENTS
Table 6 shows expected amount of finance/equity requirements of Croatian SMEs in the next three
years. Enterprises were asked if they expect the need for additional finance/equity in the next three years and 91
out of 103 enterprises (or 88 percent) responded positively. The highest percentage of enterprises (23 percent)
expect additional external financing from €100.001 – €250.000. Requirement for additional finance/equity of
less than €1.000.000 will have 65 enterprises (or about 71 percent).
Table 6 – Expected amount of finance/equity requirements in the next three years
Amount of the
% of firms indicating a
finance/equity
No. of
Cumulative
requirement in the next
requirement in the next enterprises
percentage
three years
3 years
0 - €100.000
12
13
13
€100.001 – €250.000
21
23
36
€250.001 – €500.000
19
21
57
€500.001 – €1.000.000
13
14
71
€1.000.001 – €2.000.000
14
16
87
€2.000.000+
12
13
100
Total
91
100
Source: Authors
There are about 67 percent of small and medium-sized enterprises in Croatia with line of credit or loans
from financial institutions, 60 percent of Croatian SMEs use banks to finance their investments, while 63 percent
use banks to finance their expenses. Enterprises were then asked whether they think it is difficult to raise
finance/equity now, and whether it will be difficult to raise it in the next three years. Answers are presented in
Table 7. While 52 percent of enterprises that participated in the survey think that it is difficult to raise
finance/equity now, this number goes down to 41 percent when they were asked about the difficulties in raising
finance/equity in the next three years.
Table 7 – Difficulty in raising finance/equity now and in the next three years
Difficulties
No. of enterprises
Yes – now
54
Yes – in the next 3 years
41
Source: Authors
%
52
40
Table 8 shows expected sources of finance/equity requirements in the next 3 years. Answers about the
expected sources of finance/equity in the next three years did not change dramatically regarding to the past
sources. Bank finance still strongly dominates, having a share of 43 percent of all expected sources of finance of
surveyed enterprises in the next three years. Leasing companies decreased their share for 10 percent and now
have about 17 percent of all expected finance sources. This still means that banks and leasing companies hold 61
percent of expected finance sources in the next three years. Share of other private investors went up by 5 percent
so together with venture capital funds they now have about 10 percent.
Despite obvious recent progress in the area of governmental programs, state grants as expected source
of finance went up by only 1 percent. As a part of this system there are: state financial institutions, Ministry of
economy, labor and entrepreneurship which is in charge for enforcement of laws and regulations regarding small
and medium-sized enterprises and preparing financing and subsidies programs, other public funds and local
authorities.
The Croatian Agency for Small Business (HAMAG) provides the support for enterprises that are in
their start-up or early development phase. HAMAG encourages small and medium-sized business establishment
and investments, provides loans and issues guarantees for small and medium-sized business loans and subsidizes
loan interests or investments in modern technology.
The HBOR is a development and export bank that has been established with purpose to grant credits for
reconstruction and development of Croatian economy. HBOR finances the development of economic activities
and reconstruction of economic subjects either directly or through other business banks. It also implements the
programs of financing enterprises by equity investment, which are interesting for enterprises that have potential
to grow at high pace, but are therefore more risky, which makes them unable to raise credit directly from other
banks. HBOR main activities are loan programs for financial restructuring, loan program for the development of
private SME, loan program for incentives to start up small enterprises and many others. These loans are realized
with subsidized interest rate.
According to the programs launched by the Government of the Republic of Croatia, the Ministry of
Economy, Labour and Entrepreneurship plans, conducts and monitors development programs and incentive
measures in order to achieve more homogenous development of all Croatian regions, removal of administrative
hindrances, strengthening of export orientation,establishment of entrepreneurship zones, increase of the number
of small and medium-sized businesses, change of the business structure to the benefit of production, growth of
the employment rate, increase of competitiveness - (investment into development, education, new technologies.
According to the Operational Plan for SME Promotion in 2007, adopted by Croatian Government, the Ministry
of Economy, Labour and Entrepreneurship continues with the following incentive programs: Entrepreneurship
promotion, Entrepreneurship education, Competitiveness, Entrepreneurship financing, Cooperatives and Support
institutions.
Concerning laws and regulations, Croatian Chamber of Economy with its 20 county chambers,
implementing program guidelines of Croatian government in the area of small businesses, actively engages all its
organisational forms (associations, affiliations, groups), in order to inform its members, by creating more
favourable entrepreneurship environment, monitoring and analysing of reports on implementation of projects and
incentive measures for small businesses. It suggests and supports initiatives, gives comments and suggestions on
provisions and normative regulation related to small businesses in order to improve laws and other regulations. It
cooperates with central government institutions, other entrepreneurship organisations and Associations of small
and medium-sized entrepreneurs which are involved in the problems and activities of small businesses. The
Small Business Association has been established within CCE’s Industry and Technology Department whose goal
is to bring together Croatian small and medium-sized entrepreneurs from all economic branches on voluntary
basis, in order to articulate the interest and needs of small and medium-sized entrepreneurship and to create
stimulating entrepreneurship climate, facilitate the adaptation of Croatian small businesses to common European
market, stimulate the regional cooperation, technology transfer and other higher forms of cooperation. Law
authorizes parties to agree on out of court enforcement as well.
Table 8 –Expected sources of finance/equity requirements in the next 3 years
Source
No. of enterprises
%
Family and friends
8
4
State grants
38
18
Leasing
36
17
Bank loan/mortgage/overdraft
91
44
Other private investors
13
7
Venture capital
6
3
Other
14
7
Source: Authors
% of past sources
6
17
27
43
2
2
3
According to the Doing Business and Enterprise Survey conducted by The World Bank, legal system,
corruption, taxes, customs and finance (which implies access to finance and cost of finance) could be classified
as biggest problems for small and medium-sized enterprises in Croatia. Inadequate sources of finance and
difficulties in access to finance are often main problem of SMEs, especially in their start-up or early
development phase. Adequate financing of entrepreneurial venture is one of the most important may determine
their final success. Though there were some positive changes recently that made access to finance easier, they
mainly affected large enterprises, or medium-sized enterprises that are already established on the market and that
operate in more favorable environment. Croatian SMEs affront with more difficulties in accessing finance,
resulting in its higher cost. They are in much better positions and have fewer difficulties than SMEs.
Table 9 – Use of future additional finance/equity Croatian SMEs
Consequences
No. of enterprises
Finance R&D
20
Update technology/equipment
68
Finance purchase of land and buildings
45
Invest in marketing and advertising
16
Hire new employees
33
Working capital and cash flow constraints
39
Investing in shares
2
Other
12
Total number of enterprises
235
Source: Authors
%
8
29
19
7
14
17
1
5
100
Table 9 shows use of future additional finance/equity of Croatian SMEs. Almost 1/3 of the respondents
plan to invest additional finance into technology and equipment, while every fifth enterprise plans to finance
purchase of land and buildings, which is favorable usage of additional finance. Slightly less than 17 percent of
respondents plan to use additional finance for overcoming their cash flow constraints and maintain working
capital. Very common problem of Croatian SMEs is non-payment between enterprises within payment date,
which can cause difficulties with cash flow and working capital. Therefore, banks offer quickly available straight
short term credit lines (up to 1 year) in order for enterprises to overwhelm those difficulties and ensure
continuous usual business operations. Only 14 percent of enterprise plan to hire new employees.
Croatian Employment Service has introduced measures for co-financing the employment of persons up
to 25 years old with no work experience, no matter of their educational level. These measures also cover
unemployed persons that are in its evidence at least for 12 out of last 16 months, as well as unemployed woman
above 45 and men above 50 years old, no matter of their previous work experience and educational level if they
are at least 6 months in the Croatian’s Employment Service evidence. Special co-financing measures refer to
disabled persons, single parents of under aged children as well as parents with 4 or more children. Only 8 percent
of respondents plan to use additional finance for financing research and development, while 7 percent of the
surveyed enterprises plan to invest in marketing and advertising. Despite recent popularity in Croatia, only 1
percent of enterprises plan to invest additional money in shares.
Financing of early SMEs development phase include seed and start-up financing. Characteristics of seed
financing are the necessity for small amounts of money necessary for finalizing business plan, forming
managerial team and early product development. Start-up financing is aimed to be the support for the
development of SMEs organizational structure. This financing is aimed towards enterprises that are ready to start
their business operations. Financing of the start-up phase includes financial support of different funds and state
grants in order to ensure full production and investments in different marketing activities.
Collateral value needed for a loan is average value of the collateral required as a percentage of the loan
value, for enterprises with a recent loan or overdraft that required collateral or a deposit. Value of collateral in
Croatia needed for a loan (as a percentage of the loan amount) reaches almost 121 percent. The law allows all
natural and legal persons to be party to collateral agreements, but all type of assets cannot be used as collateral.
All types of obligations cannot be secured as well. Already strict lending policies of Croatian financial
institutions have recently become even more conservative, due to introduction of unified credit registry, which
means that enterprise having credit line in one bank often cannot receive credit from other bank, which was often
case. Secured creditors do not have absolute priority to their collateral in the bankruptcy procedures.
III.
CONCLUSION
Croatian SMEs appear to have a preference for debt as opposed to equity finance for a number of
reasons, one of which is that debt finance can have tax advantages and is usually more quickly available. Equity
funds are more difficult and often initially more expensive to obtain, and generally are not available quickly.
Smaller enterprises tend to rely much more on bank sources of finance, such as loans and overdrafts.
While 85 percent of enterprises (88 out of 103 enterprises) that responded to the survey attempted to
raise finance/equity, 69 succeeded in raising all the finance/equity required. Though banks make about 43
percent of finance sources (if we add leasing companies, this number goes up to 70 percent), they still have
conservative lending policies towards small and medium-sized enterprises. These policies mostly affect
enterprises in their start-up or early development phase.
Venture capital funds and other private investors interested in equity finance are not common, making
each only about 2 percent of attempted sources of finance. Almost every fifth small and medium-sized enterprise
that responded on the survey applied for state grants. As a part of this system there are: state financial
institutions, Ministry of economy, Labor and Entrepreneurship which is in charge for enforcement of laws and
regulations regarding small and medium-sized enterprises and preparing financing and subsidies programs, other
public funds and local authorities. An advantage of this kind of financing is that if an enterprise obtained funds
from a government body, it often has positive effects on other finance providers, in case it needs additional
funds. However, this kind of financing is highly competitive with limited funds that are not quickly available and
usually requires additional administration. Government loans often require clear business and marketing plans,
as well as completion of various application forms. Despite recent progress in the area of governmental
programs, state grants as expected source of finance went up by only 1 percent as expected source of finance in
the next years.
Enterprises that are in their development phase, not yet completely established on the market had, as
expected, the most problems in raising the finance/equity required (only 62 percent succeeded). In average, 68
percent of enterprises that have consistent but not growing sales and enterprises with decreasing sales have
succeeded in raising all of the finance/equity required. Interestingly, 80 percent of enterprises that have
overcome development phase and are steadily growing, have succeeded in raising all the funds, while all
enterprises with considering expansion have managed to raise all of the finance/equity required.
The greatest effect of finance/equity shortage, as indicated by the surveyed enterprises, was problem
with working capital and cash flow constraints with 27 percent. This is followed by being dependent on bank
finance with 17 percent, being unable to invest and update their equipment and technology and being unable to
finance purchase of land and buildings with 15 percent each. Being unable to invest in marketing and advertising
was a problem that 10 percent of enterprises faced with, while only 7 percent of surveyed enterprises had
problems with financing their research and development and hiring new employees. As a reason for not being
able to raise all the finance/equity required, enterprises stated various problems out of which high collateral
value and being uninteresting for investors were the most common reasons. A smaller percentage of surveyed
enterprises were declared high-risk and therefore unable to raise all the capital required
During the last decade, Croatian SMEs have been limited in their development due to various
macroeconomics problems and inadequate financial support that have reflected on the possibility of their
financing. While 52 percent of enterprises that participated in the survey think that it is difficult to raise
finance/equity now, this number goes down to 41 percent when they were asked about the difficulties in raising
finance/equity in the next three years.
Expected sources of finance/equity in the next three years did not change dramatically regarding to the
past sources. Share of other private investors went up by 5 percent so together with venture capital funds they
now have about 10 percent. With expected additional finance, 14 percent of enterprises plan to hire new
employees. Croatian Employment Service has introduced measures for co-financing of the extra employment,
which might also serve as additional source of future financing. Bank finance still strongly dominates, having a
share of 43 percent of all expected sources of finance of surveyed enterprises in the next three years, although
value of collateral needed for a loan (as a percentage of the loan amount) might present a problem in access to
finance for enterprises in their start-up and early development phase, as it reaches 121 percent. Although the law
allows all natural and legal persons to be party to collateral agreements, all types of assets cannot serve as
collateral. Although leasing companies decreased their share for 10 percent and now have about 17 percent of all
expected finance sources, it still means that banks and leasing companies hold 3/5 of expected finance sources in
the next three years.
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Viducic, Lj. (2006) Financijski mendzment, RRiF, Zagreb
Doing Business, The World Bank, http://www.doingbusiness.org/
Enterprise Surveys, The World Bank, http://www.enterprisesurveys.org/
Croatian Agency for Small Business, http://www.hamag.hr/
Croatian Bank for Reconstruction and Development, http://www.hbor.hr/
Croatian Chamber of Economy, http://www.hgk.hr/
Croatian Employment Service, http://www.hzz.hr/
Croatian Ministry of Economy, Labor and Entrepreneurship, http://www.mingorp.hr/
The World Bank, http://www.worldbank.org/