A survey conducted by Estonian-owned Holm Bank has revealed that the investment inclination of small businesses in the country has been affected by escalating costs and a decline in demand. Nearly half of the respondents would be interested in investing if the economy were to grow again and stability restored to taxation policies.
“During our annual survey,” said Viljar Lillemägi, Business Banking Director at Holm Bank, “we asked 300 entrepreneurs and heads of finance to evaluate the current financial status of their companies and the developments they anticipated for 2024. The study revealed that the prolonged period of instability, continual increase in costs, and decrease in demand in a cooled-down economy have eroded the confidence of micro and small business owners. 43% of respondents stated that their current situation is somewhat or significantly worse compared to the previous year.”
On the other hand, a little over a quarter (26%) of respondents mentioned that their situation was better compared to the previous year. “The expansion of current activities and the adoption of new business strategies were the most cited reasons for this, reaffirming the age-old truth that companies willing to capitalize on a crisis by implementing changes and adapting to new conditions can emerge from the crisis even more successful,” explained Lillemägi.
Change usually entails investment, yet according to the survey results, only a third of small businesses plan investments for the next year. Lillemägi noted that investment confidence has improved compared to the previous year; last year, only 25% were optimistic about new business plans, whereas this year it has reached 34%.
“However, for companies to maintain and grow their competitiveness, this percentage should be much higher. There is a desire among companies to enhance their competitiveness; a substantial 93% of respondents stated that they would be willing to consider investments under certain conditions. Nearly half would like to see economic growth and stabilization in tax policies, with other conditions comprising revenue growth, price reductions, or the emergence of new business potential accompanied by investments,” explained a representative from Holm.
For entrepreneurs to be convinced that their investment plans will pay off, Lillemägi says they must be able to put basic budget lines like labour costs, fixed-asset management costs, and other direct business-related costs in place for the coming years.
When entrepreneurs are uncertain about the taxes they will be paying in the next 12 months, it becomes challenging for them to make reliable forecasts," noted Lillemägi. He emphasizes that this uncertainty does not imply that the current economic situation is unsuitable for making investments."
“There are a number of favourable factors here,” he explained. “The increase in prices has stabilised in many areas, and some property sellers and service providers are being much more flexible in price negotiations compared to last year. An example of this is the reduction in work in the construction sector in Estonia and, more generally, in Northern Europe, which has dramatically slowed wage growth, making now a good time to launch the construction of new sites.”
According to Lillemägi, under these circumstances, it is a good idea for small businesses to approach small banks to discuss financing opportunities, since these banks are flexible when assessing business plans.
“In the case of the applications laid out in front of us at the moment, we’re not assessing companies’ financial indicators for the current year; rather, we are looking at the plans they’re making,” he revealed. “We’re examining whether those plans have the potential to bring in new income for companies in difficult circumstances without placing their wellbeing at risk.”
Holm Bank AS is an Estonian-owned bank with an operating licence issued by the European Central Bank. The bank owns the trademarks Liisi and Holm. The bank’s services include term deposits, physical and virtual credit cards, retail and corporate financing, and instalment loans. It also offers term deposits in Germany and Austria and owns Holm Bank Latvia SIA, which operates as a financial services provider in Latvia.