Finance for Business: Bank Loan, Equity Investment, or Both
Šiaulių bankas in liaison with the daily Verslo žinios, the SORAINEN Law Firm and Lithuania’s Private Equity and Venture Capital Association held a joint conference for entrepreneurs, which are interested in business development, rapid growth in production volumes and sales, corporate experience of raising expansion capital and successful cooperation between companies and venture capital funds, thinking about run-up in investor activity and seeking sustainable and targeted business development strategies. The Business Development Finance: Expansion Capital Conference was attended by 120 participants. Reports were delivered by ten speakers and the participant discussion was arranged.
Currently, there are 5 venture capital funds established under the JEREMIE initiative that are actively investing in the growing and promising small- and medium-sized businesses in Lithuania; they have already invested more than 26 million euros. The estimated turnover of venture-capital investors has grown by 66 percent meanwhile the number of employees increased by 14 percent. However, Lithuania is still lagging behind the leaders in the European Union (Finland, Ireland) in this respect due to lack of information about venture capital and entrepreneur hesitation to transfer part or all of the company shares to private equity and venture funds in return.
Vytautas Sinius, Chief Executive of Šiaulių bankas, invited all the participants of the conference to join the discussion and said, “Venture capital and bank financing are increasingly approaching one another accordingly flexible financial instruments creating new opportunities for businesses appear in the market. A professional investor's decision to invest in the growth of the business allows the bank to finance projects under more favorable conditions and to provide greater security guarantee for loans”.
Companies with high growth potential experience not only the joys but also the constant hunger for working capital and investment financing, therefore they often consider and combine new sources of funding with traditional lending instruments, in which case the bank is a particularly important partner.
According to V. Sinius, Šiaulių bankas can offer a number of noteworthy lending products to companies nourishing business development ideas but lacking the funds to implement them. For a couple of years, the bank uses a portfolio guarantee instrument which allows the bank itself to decide which credits should be included in the portfolio guarantees developed by the European Investment Fund (EIF) and managed by the INVEGA. This means less time spent on the decision to adopt a portfolio guarantee. A well-diversified portfolio also helps reduce the likelihood of a margin call, the clients will be less rushed when sorting out what collateral they need, and the guarantee fee will be paid by the bank - the customer does not have to pay anything. In addition, these credits are covered by attractive terms, credit amounts and types.
Funded risk sharing product under the JEREMIE initiative is another financial instrument similar to a portfolio risk-sharing loan instrument. In granting these loans in equal parts, i.e. in halves, the European Union structural funds and the bank funds are employed and the credit default risk is shared. Both types of loans are focused on long-term business growth and development, as well as for investments in tangible and intangible assets.
Šiaulių bankas acting as EIF's intermediary can provide micro-credit under Progress Microfinance facility to small-scale businesses, individual firms or individual entrepreneurs planning expansion. The benefit of micro-credit is its exemption from standard credit approval fees, as well as quicker decision on the granting of credit.