Sources of Financing for SMEs in the Visegrád Countries


Access to finance is a high-stakes issue when it comes to the development of small- and medium-sized enterprises, as Les Nemethy and El Mehdi Hosni explore. Large corporations typically have much better access to capital, whereas in many countries it is the SMEs that generate more jobs and create more local wealth.

This article will look at financing methods and trends for SME’s (companies that have less than 250 employees and EUR 50 mln turnover, according to the European Commission) over the past few years, typically utilized in the Visegrád Four countries, also known as the V4, a regional group of Central European countries comprised of Czech Republic, Hungary, Poland and Slovakia, which are members of NATO and EU.

The following chart indicates that it is only a minority of companies that consider access to finance to be a problem, and that recently access to finance is becoming less of an issue.

While it was one of the top challenges for SMEs at the beginning of the decade, by 2019 access to finance was a secondary concern. Availability of skilled staff and managers, finding customers and reducing costs were greater problem areas.

Better SME access to finance is a direct result of the improvement in economic conditions since 2013, and lower interest rates throughout the European Union.

Credit lines (including bank overdrafts and credit overdrafts) and leasing were the most used sources of financing during the past few years; they provide flexibility and target precise financing needs. Bank loans (e.g. where repayment terms are fixed) are slightly less frequently used by SMEs, being less flexible than credit lines.

Grants have a surprisingly large usage by SMEs in the V4, with Hungarian SMEs having a substantial lead. This is because the Hungarian government has decided to channel a large share of its EU structural funds towards SMEs.  

It is perhaps surprising that equity financing accounts for such a tiny share of SME financing throughout the V4, whereas it represents on average 11% of SME financing across the whole of the EU. Equity financing is a relatively new financing method in Central Europe (beginning only in the 1990s) and is typically concentrated in few countries (e.g. Poland or Hungary) and attractive sectors (such as healthcare and information technology) where attractive returns on investment are attainable.

According to the SAFE survey 2019, trade credits are a substantial source of SME financing in Poland.

Factoring still has a perception of being a financing method used only in distress situations or as a last resort. As this perception diminishes in the V4, factoring is likely to catch up to the EU average: it is much more widely used by SMEs in Western Europe. It is also used by larger companies (generally with 250 or more employees) in Central Europe involved in export activities.

SMEs in the V4 generally resort to fixed investments and working capital when it comes to financing.

SMEs in Central Europe use very little equity financing. One might speculate about the reasons for this. Perhaps the heavy use of grant funding is a substitute for equity. Or perhaps the relatively low interest rates and availability of debt diminishes the need for equity, (although this would not explain why there is so much more equity used elsewhere in Europe).  

V4 SMEs are perhaps missing an opportunity here: buoyant financial markets are the most opportune time to create an equity reserve, so that companies may avail themselves of excellent opportunities that present themselves during recession or depression, or just to provide a buffer to help survive a downturn.

Les Nemethy is CEO of Euro-Phoenix (, a Central European corporate finance firm, author of Business Exit Planning ( and a former president of the American Chamber of Commerce in Hungary.

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