Bulgaria: Bank Credits Hard To Come By For Businesses

By Svetla Dimitrova

Obtaining credit was an easy job for non-financial small-and medium-size enterprises (SMEs) in Bulgaria and 19 other EU nations four years ago, according to a new Eurostat survey released on Monday (October 3rd).

But that became more difficult for them after the economic crisis started spreading across the globe, it concluded, based on the results of loan applications submitted between 2007 and 2010 by such companies in the 20 countries for which data were available.

The percentage of SME credit requests that were rejected altogether rose more or less significantly in all of the surveyed countries, except Sweden.

The largest increase in unsuccessful loan applications was recorded in Bulgaria — from 3% in 2007 to 36% in 2010, Eurostat said. The Balkan nation was also the country with the highest percentage of rejected credit requests among the 20 covered in the survey. Furthermore, the share of successful loan applications, i.e. SMEs that were granted the money they requested and under the conditions they sought, fell the most also in Bulgaria — from 87% of all in 2007 to 43% in 2010.

Ivaylo Georgiev, owner of the Sofia-based Metal M company, was among those who sought bank financing during that period to secure the additional operating capital he needed. His primary bank however turned down his credit request, viewing it as risky. He was eventually granted the financing from another bank, but it was not easy.

“We had five sessions with the credit inspectors. Our request was initially rejected, but it was then reviewed and our application was eventually approved,” Georgiev told SETimes. “It took us about seven months to secure the financing.”

Ivan Midyurov, an entrepreneur from the Black Sea resort town of Primorsko, was not as lucky, though, but he does not regret it. Just before the crisis began, he wanted to build a hotel and then sell it, but his application for an investment credit was turned down. The bank inspectors considered is risky, he explained.

“It’s better that they did not approve my application, because it would, most probably, have been impossible for me to repay the credit, given what happened in recent years,” Midyurov told SETimes.

Before the crisis, Bulgaria experienced a long period of steady economic growth, which also led to a continuous increase in market sales, said economist Georgi Angelov of the Open Society Institute (OSI) in Sofia.

“Therefore, the access to credits was very easy, as the financial situation and companies’ growth potential both looked good,” he said.

But when the crisis hit, the economic situation began to deteriorate, making it more difficult for SMEs to find new financing. They proved unprepared for dealing with such a risk, Angelov told SETimes.

“Believing that they would always have access to limitless bank financing, many of them launched long-term projects, financed with short-term credits, which was irrational,” he said.

“Furthermore, many Bulgarian companies stand on the verge of the gray sector of the economy, declaring only part of their revenues,” Angelov added.

While that was not a big issue in the situation of wide-spread optimism before the crisis, it turned into a problem when the turmoil started, as bank inspectors began to scrutinise the companies’ balance sheets and account books more carefully.

“The business practices that worked during the times of easy access to credits will begin to change and companies will have to start relying to a greater extent on internal financing, reinvestment of profits and attracting new shareholders,” Angelov concluded.