Demand for loans is growing among businesses

Until now, most loan guarantees have been issued to projects of small and medium-sized businesses (SMBs) but the Ministry of Economy decided to expand the scope of loan guarantees to cover large companies as well in view of the needs of business associations. Therefore, INVEGA has been able to provide state guarantees for the loans of large companies as well since January 2016.

According to Investicijų ir verslo garantijos (INVEGA) CEO Audrius Zabotka, 471 individual guarantees were issued to SMBs for business loans or leasing transactions in 2015 (5,713 since the beginning of operation). “Last year, our guarantees helped businesses borrow some EUR 56.6 milllion. According to information provided by borrowers, the companies supported by INVEGA in the form of SMB loans and leasing guarantees in 2015 have a workforce of 12,218 people and the implementation of projects financed under guaranteed leasing transactions and loans is expected to create about 830 new jobs,” Mr. Zabotka says.

A survey of 150 largest companies conducted by the Lithuanian Industry Confederation (LIC) indicates that the demand for loans is growing among businesses.

“The appetite for borrowing is growing because of several factors. First, new business support measures under the EU Investment Funds were launched this year. If all goes smoothly and on time, the appetite for borrowing of businesses will increase even more. Second, businesses are entering new markets: exports of goods originating in Lithuania, except for petroleum products, to North America rose by 39%, or EUR 102 million, and exports to Asia went up tenfold last year. All that required investments into capacity upgrading. Third, since the growth of wages has been gathering pace, the real wages in the private sector went up by 6.5% last year, companies are investing in modernisation in order to remain competitive,” Aleksandr Izgorodin, Director of the Foreign Relations and Business Services Department of the LIC, says.

INVEGA CEO explains that guaranteed loans usually have a dual purpose. “Businesses borrow both for investments necessary for business development and financing of their increased need for working capital. Statistically speaking, almost 50% of all loans with an INVEGA guarantee are taken out to finance investment. As you know, we focus on small and medium-sized businesses but we were also able to offer guarantees for loans of large companies this year. So far, large companies have not yet taken advantage of this opportunity although the need for such guarantees was very clear. It must be assumed that companies are in the process of preparation of investment projects,” Mr. Zabotka explains.

Meanwhile,  Mr. Izgorodin predicts the demand for business credits to continue to rise. Newly launched instruments of the EU Funds will also contribute to that.

“Any instruments improving access to finance for businesses are very welcome. Currently, most financial assistance for credits is focused on the SMB segment so the decision to expand financial incentives to cover larger companies as well is a correct one,” Mr. Izgorodin believes.

Although SMBs dominate in Lithuania, a handful of companies generate more than 30% of gross domestic product and create more than 20% of jobs nationwide.