In recent years, SMEs have experienced a surging amount of challenges.   

Whether due to debt financing constraints or the economic downturn the world is currently enduring, SMEs do not have the same luxuries as big corporations in order to ensure sustainability during this period of economic stress. 

Payment Expert spoke to SME Bank, a Lithuania-based bank service provider, CEO Mantvydas Štareika on the challenges that are currently posing SMEs across Europe, its relationship and work with SME Finance, and its support to businesses affected by the Russia-Ukraine war. 

Payment Expert: Could you briefly explain SME Bank’s come-up and its core mission for European SMEs?

Mantvydas Štareika: SME Bank was established in order to fill the lending gap for Small and Medium enterprises and to provide the main financing services for them within a single platform. SMEs represent over 90% of companies in Lithuania, a similar number across Europe. SMEs generate about 40% of GDP in emerging economies too. 

Despite this, traditional banks, which represent the majority of the market in Baltic countries, are not interested in SMEs. In fact, most SMEs are rejected from traditional banks because of the lack of information, data, or because of the higher risks. 

So there is a huge opportunity to fulfil the needs of SMEs. We are focusing on making financing products and services more accessible and making these services totally digital.

Our mission is simple – to provide financing services faster, simpler and cheaper. A key differentiator for us is the creation of a single platform with a variety of financing and banking products for SMEs. We have a lot of financing products all in one place. Core services include providing daily banking services with additional financing/lending opportunities to every business. 

PE: What are some of the most pressing challenges SMEs within Europe face on a regular basis?

MŠ: Debt financing is hugely important for SMEs. The EU’s latest survey on the access to finance of enterprises (SAFE), for 2021, finds that across all 27 EU member states, 77% of SMEs used debt financing in some form. And yet, the same report also finds that accessing business finance is harder the smaller the company size. 

One of the many challenges facing SMEs looking for business loans is that lending is often based on the same credit scoring models used for consumer lending. SMEs are also dealing with the Russia war in Ukraine, which requires much more thorough due diligence when establishing potential links to sanctioned countries.

Although we don’t have ties with companies in Russia or Belarus, we have to be more cautious in offering financing to SMEs in the region. On the flip side, the macroeconomic uncertainty has also led to a general fall in demand as most small businesses are now reluctant to take on additional loans, we estimate this will be the case at least until the end of the year.

As always, some of the main challenges SMEs face are the lack of financing and limited access to financing possibilities. Some businesses in the SME category could also benefit from business investments, however they are put into a box, which traditional banks often find uninteresting.

PE: Can you explain what SME Finance sets out to achieve?

MŠ: SME Finance is a fintech company which is our closest partner, who offers complementary services to the ones that SME Bank offers. We have created an ecosystem with them that we are also looking to expand further. This means that together with SME Finance, we are managing, offering and perfecting as many financing services as possible in order to benefit SMEs. 

SME Bank mostly provides daily banking services, such as payments, accounts, deposits, payment initiation services. Now, we can also offer revenue-based financing for ecommerce businesses which are using our services as well as financing. 

As a licensed bank, we are more regulated than our partners SME Finance – but they are very strong in the financing sector, so they can provide financing to a wider SMEs group with higher risks for example. That’s why we are working within one ecosystem with them – in order to fulfil every need that an SME may have. 

SME Finance’s delivery method provides all financing solutions in a single, AI-powered platform. Our aim is to create a single platform with all financing products for SMEs in one place. This digital platform will bring a number of value-adds for SMEs. Together we are managing to create a hub for all SMEs’ financial services needs as a single marketplace with best-in-class partners.

PE: SME Finance recently launched in Finland. What makes Finland an intriguing market suited for SME Finance? 

MŠ: The Nordics are known for their cashless economy, global reputation for transparency, accessibility and design-led thinking. Finland is consistently ranked among the leaders in various international comparisons. It offers a business environment with a uniquely high level of stability, continuity and predictability. It is also very innovation-driven, and existing revenue streams also keeps a space for experiments.

The Finnish fintech ecosystem provides many opportunities to grow through building rewarding long-term relationships and scalable growth. In general, fintechs in Finland are modern and technology-oriented. There are plenty of opportunities to find interesting partnerships in the Finnish market, which SME Bank has also entered.

PE: How has SME Bank worked to provide support to SMEs that have suffered in Ukraine over the past several months? 

MŠ: At the beginning of the Russo-Ukraine war, SME Bank donated money to charity organisations. It was a grassroots initiative in which we saw a lot of our employees take initiative. 

On a more formal and long-term basis, SME Bank is cooperating with INVEGA, a financial entity incorporated by the Lithuanian state, to give business loans for those businesses that have been directly affected by the war in Ukraine, with Invega  guarantees for a business loan. This guarantee can cover up to 90% of the loan amount.

PE: Which countries does SME Bank aim to expand into and what are some of the goals you have in mind for next year?

MŠ: SME Bank services are currently available in Lithuania, Latvia, Estonia and Finland. We are in the process of entering the German market right now, where we see lots of potential with its enormous Mittelstand

In 2023, we plan to enter the Dutch and Spanish markets, followed by Belgium, Poland and France in 2024.