According to “Oferta Finance” data, entrepreneurs in Latvia, Lithuania, and Estonia remain significantly more cautious about borrowing than their counterparts in other European countries – leaving much of the credit potential untapped.
“Baltic entrepreneurs are disciplined and frugal – this is our strength,” says Arturs Geisari, founder of “Oferta Finance.” “However, if our region wants to become the next Scandinavia, we must learn to be more open and courageous. Entrepreneurs should use loans as an instrument for growth, as access to additional funds can secure not only faster turnover and profit growth but also opportunities to enter new markets. By investing borrowed capital into productivity and innovation, it is possible to significantly increase competitiveness. Those who fail to do so risk losing their competitive edge,” concludes A. Geisari.
He points out that, overall, the situation in Latvia, Lithuania, and Estonia is not encouraging. “Credit in the Baltics is more expensive than the European Union (EU) average, and the banking market is very narrow – dominated by just a few major players with cautious risk policies. Entrepreneurs themselves are also conservative – the business environment is still characterized by thrift and fear of borrowing rather than a readiness to take risks and use financing as a growth instrument. As a result, Baltic business indices remain at the bottom within the EU, and the credit market is shallower, with significantly less growth capital compared to more developed regions,” notes A. Geisari, emphasizing that the Baltic region should learn from Northern Europe.
“There, the Global Entrepreneurship Index (GEI) level is significantly higher. Innovation and startup ecosystems are also well developed, while the loan-to-GDP ratio exceeds 100%. Cultural factors also play a big role – entrepreneurs are ready to borrow, spend, take risks, and live better. In addition, it should be noted that these countries also have high levels of life satisfaction and security indicators, which provide a stable foundation for business development,” observes A. Geisari, concluding that the challenge for the Baltic region is clear.
“We must move from a culture of caution and frugality to a culture of growth and courage, using credit as a tool to unlock new investments, markets, and innovations. In principle, obtaining a loan in Latvia is not complicated – formally, according to the ‘Getting Credit’ index, we rank 15th globally. However, the average loan amount per company is twice as small as, for example, in Estonia. At the same time, Latvia has a strong credit information and collateral infrastructure, yet in reality, lending is slowed down by several factors. First, the banking market is dominated by a few large players with equally conservative risk policies, which for a small market means higher costs. Additional barriers are created by capital requirements and stricter risk assessments for SMEs, which from a regulatory perspective do not encourage lending to small businesses. Equally important is the demand side. Our society prefers to save rather than take risks, meaning many projects never even reach the banks,” says A. Geisari, adding that the numbers are not encouraging.
“The loan-to-GDP ratio in Latvia is only about 40%, and the average loan for an SME amounts to around €31,000, compared to about €66,000 in Estonia. For the Latvian and Baltic lending environment to become more favorable to business development, changes are needed on both the supply and demand side. From the financial institutions’ perspective, it is crucial to increase competition by attracting alternative financiers, reducing excessive dependence on a few large banks, and creating more flexible solutions. Another important step is the introduction of guarantee and risk-sharing mechanisms – such as ‘Altum’ portfolio guarantees, export credit agency (ECA) instruments, as well as supply chain financing and working capital insurance. Equally important is the use of modern technologies that allow credit decisions to be based not only on collateral but also on real business data. In the SME segment, standardization of products and documentation is necessary to reduce transaction costs and make lending more efficient,” says A. Geisari, adding that entrepreneurs should also be prepared for discussions with banks and investors.
“This means having well-organized financial documentation – forecasts, balance sheets, contracts and collateral files, debtor evaluations – as well as long-term financial discipline. Companies must focus on strengthening their balance sheets, ensuring sufficient equity, strict gross margin control, and stable cash flow. Equally important are clear investment plans, return indicators, scenario modeling, and risk mitigation measures. At the same time, a cultural shift is needed – we must educate entrepreneurs to view credit as a normal growth instrument, not as an unnecessary risk or burden. Such a mindset cannot be built through a single campaign, but through consistent changes in business practices and financial education. If all these steps are implemented, the Baltic region will be able to deepen its credit market, enhance company competitiveness, and escape the current spiral of caution and stagnation,” A. Geisari concludes.
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