Types of loans for entrepreneurs in 2019

Entrepreneurs often lack sufficient information about financing options in Croatia, and they are mostly familiar with financing through commercial banks, which may not always be the most favourable or best financing option for them. I have created this overview to provide relevant financing information to entrepreneurs, so they can choose the most favourable option.

In 2019, there are various types of available financing for entrepreneurs, so let’s go through them from the cheaper and less complex options to the more expensive and complex ones. The table below provides a brief summary of the key characteristics of financing options offered by different institutions.

The Croatian Agency for SMEs, Innovation, and Investments (HAMAG-BICRO) approves several types of small loans (unlike loans, which can only be provided by banks, a loan can be granted by any individual or legal entity).

HAMAG ESIF loans for entrepreneurs are ideal for beginners and businesses with limited financial strength because they do not require a down payment, typically only require the company’s promissory notes as collateral, allow the purchase of used equipment, have no fees, and offer low interest rates. HAMAG allows individuals to apply for the loan, but the condition is that they register a business entity after the loan approval. In addition to the legal and financial documentation, a business plan, quotes, and letters of intent need to be submitted. The approval process takes between 1 and 3 months. The loans are in Croatian Kuna (HRK), but at the time of approval, they can be converted into Euros (EUR).

The ESIF Micro Loans program is divided into micro investment loans and micro working capital loans ranging from 1,000 to 25,000 EUR. This program is intended for micro and small entrepreneurs. The ESIF Small (Investment) Loans program, ranging from 25,000 to 50,000 EUR, is intended for micro, small, and medium-sized entrepreneurs. The following activities are not eligible for financing under this program: petrol stations, taxi services, car rental, road freight transport, trade, advertising and PR agencies, agriculture, and fisheries.

Investment loans are aimed at acquiring fixed assets (tangible and intangible assets: land, buildings, equipment and machinery, patents, licenses, concessions, franchises) with the possibility of financing working capital up to 30% of the loan amount. The interest rate ranges from 0.5% to 1.5% fixed, depending on the development index. There are no fees, and the repayment term is 5 to 10 years, with a grace period of up to 1 year. ESIF Investment loans cannot be used for financing VAT, refinancing, construction or the purchase of real estate for sale or rental, except for tourism, the acquisition of equity interests, purchases from related parties, and personal vehicles.

ESIF Working Capital loans can be used for production preparation, raw materials and supplies, other production costs, employee costs, new hiring, the lease of business premises, overhead costs, and general expenses. The interest rate ranges from 1.5% to 3.5% fixed, depending on the development index. There are no fees, and the repayment term is 1 to 3 years, with a grace period of up to 6 months. ESIF Working Capital loans cannot be used for financing VAT, refinancing existing liabilities, settling obligations to the state and financial institutions, acquiring securities, providing loans or acting as intermediaries in foreign trade.

Microloans ranging from 1,000 to 25,000 EUR and small loans ranging from 25,000 to 50,000 EUR for rural development are intended for micro and small entities in the agricultural, processing, and forestry sectors. These investment loans are aimed at the purchase of fixed assets (tangible and intangible assets) for the purpose of technology and organizational modernization, manure management, utilization of renewable energy sources, increasing the added value of products, development of non-agricultural activities, modernization in wood harvesting, forestry operations, and pre-industrial wood processing. Along with the statutory and financial documentation, a business plan, offers, and letters of intent need to be submitted. The approval process takes 1 to 3 months.

The interest rate ranges from 0.5% to 1.0% depending on the development index (0.1% for dairy farming), there are no fees, the repayment term is 5 to 10 years, with a grace period of up to 1 year. Rural development loans cannot be used for restructuring existing vineyards, primary beekeeping production, the purchase of land exceeding 10% of the total investment, financing VAT (if refundable), refinancing, the construction or purchase of real estate for sale or rental except for tourism, the purchase of equity stakes, purchases from related parties, and personal vehicles.

The Croatian Bank for Reconstruction and Development (HBOR) offers a wide range of loans for the private and public sectors. In the private sector, there are usually no restrictions on the size of the company as seen in HAMAG. The minimum loan amount is typically 200,000 Croatian Kuna, and there is usually no maximum limit in most programs. The interest rate ranges from 1.5% to 4%, with a fee of 0.5%. A 15% own participation is required, and a larger number of collateral instruments are generally requested, such as promissory notes, bonds, guarantees, mortgages, and HAMAG guarantees. The programs are available directly through HBOR and indirectly through commercial banks, with pricing and complexity falling between HAMAG and commercial banks. Due to these characteristics, HBOR loans are intended for companies with stronger financial capabilities. Along with the statutory and financial documentation, a business plan, offers, and letters of intent are required for investments up to 700,000 Croatian Kuna.

For investments exceeding 700,000 Croatian Kuna, an investment study needs to be submitted. The approval process takes 1 to 3 months. The loans are denominated in Croatian Kuna with an EUR currency clause. It is possible to include working capital of up to 30% of the loan amount in investment loans. HBOR loans also have restrictions on certain activities and loan purposes.

Young entrepreneurs up to the age of 40, business entities in which women manage and own more than 50%, and beginner entrepreneurs within 2 years of starting their business are eligible borrowers. The loan amount ranges from 200,000 to 2,000,000 Croatian Kuna, with an interest rate of 2% and a fee of 0.5%. The repayment period can extend up to 12 years, with a grace period of up to 3 years.

The eligible borrowers include companies, sole traders, individuals engaged in independent business activities, family farms (OPG), cooperatives, and institutions. The minimum loan amount is 200,000 Croatian Kuna. The interest rate ranges from 1.5% to 3%, fixed, with a fee of 0.5%. The repayment period can extend up to 14 years, with a grace period of up to 3 years. The interest rate is lower for business entities that are market-competitive, invest in activities of special interest, and invest in specific regions of Croatia. The loan is in Croatian Kuna with a currency clause in EUR.

They are intended for small and medium-sized enterprises. The loan amount ranges from 100,000 to 3,000,000 EUR. The loans are exclusively provided through commercial banks. The repayment period can extend up to 12 years, with a grace period of up to 2 years.

Users from both private and public sectors are eligible for co-financing EU projects. The minimum loan amount is 200,000 Kn. The interest rate ranges from 1.7% to 1.9%, with a fee of 0.5%. The repayment period can extend up to 15 years, with a grace period of up to 3 years.

Users from the private and public sectors are eligible for working capital financing. The minimum loan amount is 100,000 Kn, with a fee of 0.5%. For short-term loans, the interest rate is 2% with a repayment period of up to 1 year, while for long-term loans, the interest rate is 3.5% with a repayment period of up to 6 years and a grace period of up to 2 years.

Restructuring loans

Restructuring loans are available for users from the private and public sectors who need financing for existing obligations. The minimum loan amount is 100,000 Kn, with an interest rate of 4%, a fee of 0.5%, a repayment period of up to 10 years, and a grace period of up to 2 years.

Loan users are public sector entities, including local and regional self-government units: municipalities, cities, and counties, as well as companies, institutions, and agencies owned or majority-owned by local and regional self-government units and/or the Republic of Croatia. The minimum loan amount is 300,000 Kn, with an interest rate of 1.75% – 2%, a fee of 0.5%, a repayment period of up to 15 years, and a grace period of up to 5 years.

Loan users from the public sector who have received a financing Decision issued by the Ministry of Construction and Physical Planning. The loan amount ranges from 100,000 to 60,000,000 Kn, with an interest rate of 0.1% – 0.5%, a repayment period of up to 14 years, and a grace period of up to 1 year.

Loan users are local self-government units: municipalities and cities. The loan amount ranges from 500,000 to 15,000,000 Kn, with an interest rate of 0.1% – 0.5%, a repayment period of up to 10 years, and a grace period of up to 6 months.

At commercial banks, the most important aspect is assessing the borrower’s creditworthiness and evaluating their past business performance through a minimum of 2 annual reports by the entrepreneur. This approach automatically limits start-up entrepreneurs as they may not be able to fulfil this requirement, with Erste Bank being an exception. Clients with the highest credit rating typically pay the lowest interest rate and fees. Commercial banks generally have higher fees and interest rates (which are often variable) and require a higher level of loan collateral. They also classify entrepreneurs into small, medium, and large categories. Common loan collateral requirements include deposits, promissory notes, bonds, guarantees, mortgages, and HAMAG guarantees for clients who do not have sufficient loan collateral.

It is important to note that unlike fixed interest rates, variable interest rates change every 3 or 6 months, either increasing or decreasing based on the associated indicators such as EURIBOR, ZIBOR, etc. The approval of loan applications depends on the client’s creditworthiness, the bank’s business strategy, and the bank’s exposure to specific industry sectors. Commercial banks do not have restrictions on financing specific business sectors or activities. The basic classification of loans is between investment loans and working capital loans.

Investment loans primarily focus on long-term investments in tangible assets for the purpose of modernizing and expanding business operations. These assets may include production facilities, commercial and warehouse spaces, land, vehicles, vessels, equipment, tools, and other fixed assets. The interest rate for investment loans typically ranges from 5% to 7%, with fees ranging from 0.5% to 1.5%. The repayment term and grace period are agreed upon between the borrower and the bank. For investment projects, banks may require a business plan or an investment study, depending on the amount and type of project.

Working capital loans are typically approved for a term of up to 1 year or as revolving credit, which is renewed annually. These loans can be used to cover short-term obligations such as credit lines, revolving credit, and overdraft facilities. The interest rate for working capital loans usually ranges from 7% to 11%, with fees ranging from 0.5% to 1.5%. The repayment term is typically up to 1 year.

HAMAG-BICRO loans are up to 50,000 EUR, have no fees, the interest rate is the lowest, they require a low level of collateral, and they have restrictions on the industries and activities they finance. HBOR loans start at 200,000 Kn, with a fee of 0.5%, the interest rate is between HAMAG and commercial banks, they require a moderate level of collateral, and they have restrictions on the industries and purposes they finance.

Commercial banks have the highest fees and interest rates, they require a high level of collateral, but they do not have restrictions on industries and activities. I hope I have clarified the advantages and disadvantages of each institution to help you decide on the type of financing that is best for you.

For any further inquiries, advice, or recommendations, you can contact me at tomislav@poslovniplan.hr or through the website contact form at poslovniplan.hr/en/contact/.
Until we meet again, I wish you success in your business and personal goals.