Saldo Bank: chaos in the global economy does not hinder the strengthening of local businesses
As many as 4 out of 5 Lithuanian companies are classified as small and medium-sized enterprises (SMEs), it is natural that this sector is important for the country's economy, but according to the Bank of Lithuania and other financial institutions, SMEs are not only the most frequent borrowers, but also the most frequent ones to face credit disruptions. According to Outi Päivinen, Head of the SME Department at Saldo Bank, the recent roller coaster ride in the financial markets and geopolitics should not hinder the growth of this sector, which is why the bank will continue to support it by raising the loan ceiling to EUR 50 000 and extending the repayment period to 36 months.
"Despite the ongoing uncertainty in the global financial markets, various surveys and data collected show that Lithuanian companies are more optimistic about their growth prospects than last year. This is due to the country's economy growing by 0.9% in the second quarter of 2024 compared to the previous quarter, as well as improved consumer sentiment. However, companies are still cautious about dealing with slowing demand, lower turnover and higher costs, citing high tax burdens, high inflation and still high energy prices as the main obstacles to growth. These and other factors are also driving the growing need for loans," explains Päivinen.
Lithuanian SME borrowing trends in line with global trends
According to Saldo bank's finance specialist, small and medium-sized enterprises have been borrowing recently for several reasons:
Lack of working capital
Businesses borrow because they want to ensure sufficient working capital, especially in the light of the recent rapidly changing economic conditions, and because of the impact of inflation, as rising prices mean that they have to cover the costs and ensure the day-to-day running of the business.
The need for investment in innovation and technology
More companies are investing in technology upgrades to improve the efficiency of business operations and are also more likely to borrow to invest in sustainability projects that will help reduce costs in the long term.
Business development
Given geopolitical tensions and the desire to reduce dependence on specific regions, some companies are borrowing to expand into new markets, while others are looking for investment funds to offer new products or services in existing markets.
A desire to control costs
High energy prices are driving companies to invest in energy efficiency measures and companies are looking for ways to optimize their supply chains and reduce the costs involved.
"Similar challenges arise globally: as in Lithuania, most small and medium-sized businesses borrow to secure working capital and to implement technology, but there are also region-specific reasons for borrowing. In the US, there is a particular shortage of workers, so businesses in the country are borrowing mostly for investments in business process automation; in Asia, e-commerce is at its peak, so businesses there are investing in growing digital trade opportunities and regional expansion - especially in China and South-East Asia, where economies are growing at a very high pace; In Europe, the greenback and energy price spikes are particularly acute, so SMEs in the Old Continent are borrowing to invest in renewable energy, sustainability projects and to reduce energy costs," says O. Päivinen.
A new financial tool for business
SME borrowing is likely to continue to grow as businesses seek to adapt to changing market conditions and inflationary pressures, and as technology and innovation finance becomes an essential part of the sector's strategy - especially to remain competitive in the global market - says the Head of SME Department at Saldo Bank.
"There is no doubt that Lithuanian and global small and medium-sized businesses are currently facing many challenges, but new opportunities are also opening up, which is why borrowing can be a great tool to ensure the availability of working capital, to invest in technology and growth, and to adapt to changing market conditions.As SMEs are a critical component of our national economy, we have no idea that the chaos in the global financial markets these days should be an obstacle to supporting the growth of this sector.
Overall, there are now many avenues for businesses to borrow, as the range of financing options has increased, new financing models have emerged, access to corporate financial data has improved, data processing and analysis have become more sophisticated, allowing for a more accurate assessment of business risks and repayment capacity.This is why we have brought to the market a new tool that will improve the loan options by raising the credit ceiling to €50,000 and extending the repayment period to 36 months. In addition, as the loan process is automated, businesses will receive the funds quickly - within almost 24 hours. I believe that these changes will help a wider range of businesses to find credit solutions for more complex situations, and that we will continue to improve our products to meet the needs of businesses in the future," says O. Päivinen, Head of the SME Department at Saldo Bank, about the new opportunities for businesses.
