Small and medium-sized enterprises (SMEs) in Lithuania face an annual financing gap of approximately €1 billion. The most frequent obstacle is that companies lack sufficient assets to pledge as collateral for a loan. However, business owners should not lose heart. Commercial banks are helping to overcome this hurdle by taking over the entire administrative process and assisting businesses in securing credit guarantees from business support institutions, which unlock access to the necessary funding.
“For a business, a credit guarantee is like an insurance policy and a strong backbone, allowing the bank to open doors that previously would have remained shut. It enables a business to make its move today, instead of waiting for the company to accumulate enough assets to borrow without a guarantee,” says Marius Bačianskas, Head of Lending at SME Bank.
Simply put, a credit guarantee is a commitment made by a financial institution, such as the European Investment Fund (EIF), to cover a portion of the loan for the bank if the business becomes insolvent. For a business, this means that the bank can grant a loan even when the company lacks sufficient assets (collateral) to secure the credit.
A guarantee is neither a gift nor a subsidy, it is a tool that allows the bank to assume greater risk and offer better terms, such as a longer repayment period or a lower down payment. The guarantee can cover up to 80% of the total loan amount.
For example, suppose a company intends to invest €100,000 in new manufacturing equipment and plans to take out a loan. To secure a standard business loan of this size, the company would typically need to pledge real estate or other bank-acceptable assets valued at least at €130,000. On top of that, the company would have to inject 30–50% (€30,000–€50,000) of its own funds into the investment project. For many growing businesses, this becomes an insurmountable barrier.
In contrast, if the company secures an 80% EIF credit guarantee for this project, a down payment of just 10–20% of its own funds is often sufficient. The bank finances the remaining amount without requiring additional real estate collateral, as the purchased equipment itself and the provided guarantee serve as the primary security. Furthermore, with a guarantee, the business can borrow for a longer duration, for instance, up to 10 years instead of the standard 3 years typically applied to regular business loans. This allows the company to preserve financial resources for further business expansion, as the monthly installments become significantly lower.
Loans backed by an EIF guarantee are available to companies investing in future technologies or operating within specific sectors:
Investment loans with EIF guarantees are designated for SME companies with fewer than 250 employees and an annual turnover of under €50 million.
Business owners often mistakenly believe that applying for funding with a guarantee involves dealing with complex bureaucratic procedures or filling out countless extra documents. The reality is quite the opposite, the bank takes on the entire administrative process and all communication with the funds.
The bank acts as a filter and an advisor: after evaluating the company’s field of activity, whether it be sustainability, digitalization, or the creative industries, it independently proposes the most beneficial guarantee package to ensure a lower down payment or a longer loan term. As a result, the financing process becomes smooth and efficient: the bank handles the administrative workload and risk-sharing with international institutions, while the company receives the capital required for expansion without the need to pledge additional real estate.
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