Small and medium-sized enterprises (SMEs) in Lithuania face an annual financing gap of approximately €1 billion, according to an analysis by the European Commission. Lithuania ranks among the EU member states with the largest financing gaps relative to the size of its economy.

“A financing gap represents untapped potential for SMEs – it translates to missed investments, unrealized innovations, fewer jobs created, and lost opportunities for businesses to grow faster. I am convinced that by identifying the main barriers to financing and addressing them through the joint efforts of banks, SMEs, and business support institutions, we could realize this growth potential far more effectively,” says Lukas Baškys, Chief Business Banking Officer at SME Bank, a digital bank specializing in business financing.

One of the primary reasons SMEs fail to secure financing is that young, innovative companies often lack a long credit history or tangible assets to use as collateral. Consequently, banks perceive them as risky, even when their business models are sustainable.

According to Mr. Baškys, loan guarantees provided by business support institutions play a vital role. They act as a “virtual collateral,” allowing companies that would otherwise be ineligible or limited to much smaller amounts to secure the necessary funding. However, support measures alone are not enough. It is essential to strengthen trust between financial institutions and businesses through open dialogue and data sharing. Banks are already investing in a deeper understanding of specific sectors, such as technology and the security and defense industries.

The role of banks as financial advisors to SMEs is equally important. For example, they help businesses navigate available financial instruments, including guarantees. Many SMEs fear that guaranteed financing involves a heavy administrative burden. In reality, most of the process takes place within the bank, and the company itself usually requires no additional administrative steps.

In turn, businesses should also do their “homework”: maintain a clear expansion plan, provide accurate financial statements, and look beyond their primary or major banks. SMEs should explore financing opportunities at smaller specialized banks, credit unions, or alternative financing institutions.

SMEs are the backbone of the Lithuanian and EU economies, generating the majority of GDP and providing the bulk of employment. To ensure they fully reach their expansion potential, the financing gap must be closed. According to research, the SME financing gap in Lithuania has exceeded 1% of the country’s GDP. Based on this metric, Lithuania, alongside Estonia, Cyprus, and Greece, ranks among the countries with the largest financing gaps.