10. Czech Republic

The approach of SMEs to the financing of their business activities can be assessed as favorable for established companies due to high bank liquidity. Banking and non-banking institutions, private individuals, venture capital funds offer a wide portfolio of financial products. Established entrepreneurs do not have a problem with access to bank loans, leasing and factoring. Alternative sources of financing include venture capital, angel investments, bond issuance, crowdfunding and state support. However, the Czech Republic is characterised by a weaker investment environment, which undermines the establishment of new companies and the financing of new SME projects. While crowdfunding has become a popular tool for obtaining the necessary financial resources, capital financing is underdeveloped compared to similarly sized EU economies. There is a lack of willingness to invest in the early stages of business development (pre-seed, seed, start-up and later stage venture). The market for angel investments is barely visible, fragmented. However, the situation for innovators in the idea phase or start-ups is more complicated. Investments in these entities appear to be high risk for investors and banks, mainly due to the absence of relevant corporate history, lack of collateral or lack of information to assess their credit risk or valuation of their intangible assets.

SMEs are very vulnerable, especially in terms of financing, and have a higher perception of financial risk due to more frequent rejections of loan applications. The situation in this area has significantly improved over the last few years. The 2019 EC survey states that the share of SMEs in the Czech Republic, which cite the access to finance as the most significant problem, decreased from 12% in 2011 to 8% in 2019, to increase again to 10% in 2020 as a result of the coronavirus pandemic. In terms of access to common methods of financing, the Czech Republic is above average in several indicators showing the quality of SMEs' access to finance. The most important direct sources of external financing for SMEs are credit lines or overdrafts (52%), bank loans (43%) and leasing (50%). So far, capital financing is relevant for only 1% of companies. In terms of the use of financing, between 2019 and 2020, investment in the development of new products or services remained almost constant (around 25%). Most sources of finance are intended to finance either fixed investments or inventories and working capital.

In 2020, there were roughly 1.18 million active enterprises in the Czech Republic. 99.85% of these firms were SMEs with less than 250 employees each. Micro-firms dominated the business landscape, comprising 96.4% of all SMEs in 2020. The total number of SME employees decreased by 42.8 thousand in 2020 compared to 2019, i.e. by 1.8% to a total of 2.35 million employees. Given the situation caused by the coronavirus epidemic, this decrease can be considered moderate.

Interest rates for SMEs decreased by 14.1% in 2020 compared to 2019. This decrease does not reach the level of the minimum rates from 2016 and 2017. The interest rate spread between SMEs and large firms increased by 0.43% to 1.13%. The recent development in interest rates was probably also due to the response by the Central National Bank to the COVID-19 crisis, by proposing a banking package containing a proposal to amend the Capital Requirements Regulation (CRR-COVID). The measures also include the application of a factor supporting SMEs.

Venture capital investments reached their lowest level in 2016. Since then, they gradually increased until 2019, when VC investments reached EUR 24.3 million and re-investments jumped to EUR 125.5 million. According to preliminary data, VC investments returned to pre-2019 levels in 2020. They reached EUR 14.2 million in VC, and reinvestments fell even more sharply, from EUR 125.5 million in 2019 to EUR 25.0 million in 2020.

Government support for SMEs and entrepreneurs primarily consists of measures in the areas of developmental and operational financing, export support, support of the energy sector, development of entrepreneurial skills and financial literacy of entrepreneurs, technical education and research, and development and innovation.

The SMEs Support Strategy in the Czech Republic for the period 2021-2027 (SME 2021+) aims to increase the productivity and competitiveness of SMEs, and at the same time to strengthen their international position, inter alia in the field of research and innovation or the use of advanced technologies and skills. The Strategy represents the key strategic document for the preparation of the European Union (EU) cohesion policies over the 2021–27 programming period in the area of enterprise development. This includes the Operational Programme Technologies and Applications for Competitiveness (OPTAC).

SME 2021+ includes several tools, such as government loan guarantees (National Development Bank – former Czech-Moravian Guarantee and Development Bank), financing and insuring schemes for exporting SMEs (Czech Export Bank and Export Guarantee and Insurance Corporation) and innovative businesses (INOSTART programme). It also includes a programme to draw financial resources from the EU Structural Funds (Operational Programme Technologies and Applications for Competitiveness) which provides support to SMEs through grants, preferential loans and guarantees.

As of 21 April 2020, the Ministry of Industry and Trade had announced three calls for the COVID programme based on credit and guarantee instruments. Due to the emergence of COVID-19 and related preventive measures, the COVID II program was launched in the spring 2020 as part of the EXPANSION-guarantee program. Another program that tackles the effects of the pandemic is the COVID III program, designed for SMEs and large enterprises. Other loan programs in 2020 were the ENERG program and the ENERGY SAVINGS program. The goal of both programs is to reduce energy consumption

Within the COVID I program, the volume of loans provided was CZK 928 million. In the COVID II - guarantees program, the volume of guaranteed loans was CZK 14.6 billion. In the COVID Prague guarantees program, the volume of guaranteed loans was CZK 1.6 billion. COVID III program is intended for companies with up to 500 employees, without distinction of SMEs; the volume of guaranteed loans was CZK 18.1 billion.

SMEs play an important role in creating jobs in the Czech Republic and generally contribute to social stability and economic development. Their development may, however, be hindered by factors such as insufficient collateral for obtaining capital or loans, limited resources to access information (especially on new technologies and potential markets), limited market reach, obstacles to entering foreign markets, as well as insufficient innovative potential.

The value added by SMEs continues to grow on a year-on-year basis, reaching nearly CZK 1.77 trillion in 2019. The share of SMEs that directly export is lower than that of large companies, and amounts is less than one-third (28.1%) of all exports. The statistics may, however, be skewed by the fact that SMEs often play the role of suppliers to large enterprises that export.

Investments of SMEs in 2019 reached CZK 485.7 billion, which is CZK 25,350 million less than in 2018. The share of small and medium-sized enterprises in investments of the business sector in 2019 reached 56.2%, which represents an increase compared to 2018 by 2.3 pp.

New SME loans declined continuously between 2007 and 2010 by 40.7%, recovering slightly in 2011 and 2012 (+0.6% and +4.6%, respectively). In 2013, this upward trend again reversed with new SME lending dipping by 33.3% in the span of a single year. Recovery since then has been uneven, with increases in 2014 and 2015, and a 15% drop in 2016. The volume of new SME loans remained stable in 2017. Total new business loans peaked in 2008, before contracting again by a total 30.8% in the 2008-11 period. In 2019, new business lending reached a new record low, declining by 45 % vis-à-vis the pre-crisis period (2008). In 2020, the trend changed and the volume of SME loans increased (29.9%).

This evolution is mainly due to the impact economic activity had on the volume of new loans in general. Its decline in 2013 negatively affected new lending volumes, especially for SMEs. The increase in new loan volumes in 2014 was a result of the recovery in economic activity. Moreover, in 2016, there was a discrepancy in the evolution of the volumes of new CZK loans and new EUR loans, as the former decreased and the latter increased. This can be explained by the likely exchange rate fluctuation after the Czech National Bank was expected to exit from the exchange rate commitment (using the exchange rate as an additional instrument for easing the monetary conditions).1

Overall, volumes of new loans to non-financial enterprises have remained on a lower level in comparison to the pre-crisis period (before 2009). From a long-term perspective, there seems to be an effort by companies to optimise their balance sheets and use their own sources of finance for their operational and investment expenses. In a context of growing demand for long-term credit, new loans are utilised especially for financing mergers and acquisitions, restructuring, as well as for debt and fixed investment expenses.

As in the reference period new SME loans shrank more than new business loans, the SME loan share in total new business loans decreased from 23.9% in 2008 to 20.3 % in 2020. This trend is caused by two factors. First, banks implemented stricter rules for credit risk management, placed higher demands on the financial health of borrowers and requested higher loan collateral. Entrepreneurs, on the other hand, faced lower order volumes, and fears of an uncertain economic development led to discretion in lending money along with more efficient methods of utilising own resources.

SME interest rates were down for the third year in a row (2015-2017), in the next two years (2018-19) there was an increase and in 2020 the rates reached 3.3%. This represents a cut of less than half from their 2008 level (5.6%). Large enterprises’ interest rates also followed a similar pattern of decline since 2008, reaching 1.8% in 2016, and 1.9% in 2017. In 2018, they grew to 2.6%, in 2019 they grew to 3.10% and then in 2020 it fell to 2.13%. While the rates of large enterprises fell by 0.97 pp in 2020, for SMEs it was only 0.54 pp, which is only less than half of the decline in the rates of large enterprises.

The interest rate spread between SMEs and large firms fluctuated between 2007 and 2018, dropping by almost half in 2015, and declining by a further 13.4 pp in 2018. In 2019 it increased to 0.7 pp and in 2020 increased to 1.13 pp. The interest rate spreads in 2020 is the result of a more significant reduction in interest rates for large companies than for SMEs.

Venture capital investments peaked in 2008, and then declined dramatically, reaching 33.6% of their 2008 value in 2018. Growth capital fell even more steeply, from EUR 192 million in 2009 to EUR 4.9 million in 2016. In 2017, growth capital grew by 56 % to 10.3 million and in 2018 again dropped to 3.5 million. Total equity investments showed strong growth in 2013 and 2014, although this was not sustained, as they contracted strongly in 2015, and declined further in 2016 to reach a lower level than that of 2012. In 2017 in equity investments recovered, growing by 74% and in 2018 by 14.8%. This indicates the instability of equity financing in the Czech Republic and their current marginal role in enterprise financing. In 2019, they reached a level eight times higher than the previous year, but in 2020 they fell again to EUR 39.2 million by 74.8%.

Several public initiatives of the ministry of Industry and Trade, mainly through the EIF, helped develop the market recently. A new VC/PE fund – ESPIRA – was founded thanks to CEFoF, which also supported ENERN III and Genesis Growth Equity Fund in the later stage/growth segment in 2018. Two further accelerator/seed funds (Nation 1 VC and Lighthouse Ventures) were established as a result of the EIF fund of funds under the programme VENTURE CAPITAL OPEIC at the end of 2018.

Another option for alternative SME financing emerged in the Prague Stock Exchange, where a new alternative SME market START was created in 2018. During this year, there were 6 IPOs for EUR 14 million. Equity crowdfunding platforms like Fundlift are also gaining importance.

The proportion of non-performing loans to all loans almost tripled between 2008 and 2010, growing from 4.1% to 10.8%. This could be attributed to a worsening of the Czech economic climate in the same period. Since then, this percentage has fallen steadily, from 11.3% in 2011 to 8.7% in 2018 (to 31.3.2018), still remaining well above pre-crisis levels. It should also be noted that the quality of loans categorised as non-performing has been deteriorating, and that Czech banks have been facing an elevated credit risk.

SME bankruptcies increased year-on-year between 2008 and 2013, and remained more or less on the same level until 2013. Between 2008 and 2013, SME bankruptcies increased by 63.03%. Since then, it has declined continuously, falling from 1 228 SME bankruptcies in 2014 to 609 in 2020, the lowest value registered since 2008.

39% of the total value of B2B invoices issued by businesses in the Czech Republic was overdue during the pandemic. Although this is below the regional average (45%), it represents a significant rise in the percentage of overdue invoices reported before the pandemic (24% last year). This corresponds to an average increase of 63% year-on-year. The increase in late payments caused by the pandemic-led economic crisis is also reflected in the lengthening of DSO. 63% of businesses polled reported DSO increases of up to 10%, and 24% reported increases of more than 10% compared to before the pandemic.

The number of bankruptcies of commercial companies (CC) decreased by 10% year-on-year (71 bankruptcies), while the number of proposals for their bankruptcy decreased by 9% (100 proposals). There are probably several reasons for the low number of corporate bankruptcies. In particular, it is an amendment to the Insolvency Act, the so-called LEX COVID, which effectively prevented creditors from filing insolvency petitions against debtors from April to August 2020. It also allowed companies in trouble not to file for insolvency without undue delay. In the fourth quarter, the number of petitions for the bankruptcy of companies began to grow again, with the worsening of the epidemiological situation reducing the functioning of state offices, including the courts. The number of declared bankruptcies thus remained low despite the increase in insolvency petitions. In December, the petitions were filed for the bankruptcy of companies in 3.5 years.

Government policy support to SMEs is based on Act No. 47/2002 Coll., covering the support to small and medium-sized enterprises, and on the Small and Medium-sized Enterprises Support Strategy 2014-20. Financing small and medium-sized enterprises has been one of the key themes of the Czech government in recent years. In the aftermath of the financial crisis and the subsequent economic recession, the government was looking for ways to facilitate access to finance for SMEs.

In accordance with the Strategy for the support of small and medium-sized enterprises for 2014-20, the Ministry of Industry and Trade considers strengthening the growth motivation of SMEs to be an important priority. Eligible SMEs must be marketing-ready and able to find new markets outside the Czech Republic (both in territorial and product terms), enter them and survive. It bears upon an increased ability for international expansion, as well as on extending the scope of export, production and sales activities.

The Marketing programme, which had been prepared in this spirit within the Operational Programme Enterprise and Innovation for Competitiveness 2014-20 (OPEIC 2014-20), was approved by the Government Decree no. 581 of 14 July 2014. The aim of the marketing programme, to which the sum of CZK 1.5 billion has been allocated, is to increase the internationalisation of small and medium entrepreneurs by supporting their participation in foreign exhibitions and fairs, the provision of advantaged consulting services, and more.

The Czech-Moravian Guarantee and Development Bank (CMGDB), the Czech Export Bank (CEB) and the Export Guarantee and Insurance Corporation (EGIC) are state-owned institutions. Given the decline in SME lending and its impact on employment, investment and exports, guarantee activities were stepped up in the aftermath of the crisis. In the framework of anti-COVID measures, the Ministry of Industry and Trade provided assistance under several programmes COVID I-III. All of these programmes are evaluated regularly and presented in the “Report on Developments in Small and Medium-sized Enterprises and their Support”, that is submitted to the government and to Chamber of Deputies of the Parliament.

The national guarantee programme for small businesses (GUARANTEE 2015-2023) allows small businesses (less than 50 employees) to obtain a guarantee for a bank loan (investment and operational loans), using as a part of its funding resources terminated former guarantees and repaid loans. The programme is administered by the CMGDB, which has been under full control of the Czech government since 2012. Eligible firms need to be registered in the Czech Republic, and not operate in primary production in the areas of agriculture, fisheries and aquaculture. In 2018 the guarantees by beneficiaries amounted to CZK 11.0 billion.

The CMGDB’s key guarantee program for SMEs in 2018 was the GUARANTEE 2015-2023 Programme which was launched in February 2015. The programme was mainly comprised of guarantees for working capital loans provided in a number twice as high as investment guarantees. The results of this programme implementation confirmed increasing interest in the use of the guarantees in 2018. In addition to using national resources, the GUARANTEE 2015-2023 Programme is co-financed also from the European Investment Fund under the COSME programme.

A very important guarantee program supporting small and medium-sized enterprises in 2020 was the EXPANZE-guarantees program, which was launched in February 2019. The EXPANZE-guarantees program runs within the Operational Program Enterprise and Innovation for Competitiveness (OP EIC) with the expected receipt of applications for support by 2023.

Under the INOSTART program, the provision of loan guarantees for start-up entrepreneurs for innovation-oriented projects continued in 2020. Loans supported by the ČMZRB guarantee are provided by Česká spořitelna, a.s.

The main loan program supporting small and medium-sized enterprises in 2020 was the EXPANZE – loans program, which was launched in June 2017. The EXPANZE – loans program is implemented under the Operational Program Enterprise and Innovation for Competitiveness (OP EIC) and will run until the end of 2023.

The first call of the programme EXPANSION (Loan Fund) financed from the OPEIC 2014-20 was launched in June 2017. It facilitates access of SMEs to bank loans by providing them with soft (subsidised, preferential) investment loans and financial contribution in the form of interest rate subsidies of commercial co-loan (applicable only for projects in disadvantaged regions). The programme is administered by the CMGDB. Eligible firms need to be registered in the Czech Republic, and not operate in primary production in the areas of agriculture, fisheries and aquaculture.

The planned allocation to the programme is CZK 8.8 billion, out of which CZK 4.8 billion are allocated to the Loan Fund and CZK 4.0 billion are allocated to the Guarantee Fund. For the first call, which ran until March 2019, CZK 2.2 billion were allocated. In this programme, the CMGDB cooperates on a contractual basis with private banks, which provide SMEs with a co-loan. The CMGDB offers businesses a preferential loan, representing a maximally 60% of project eligible expenditure, to a maximum of CZK 100 million. By the end of 2018, the programme provided entrepreneurs with loans amounting to CZK 1.7 billion. The CMGDB also offers businesses a guarantee representing a maximum of 80% of a principal guaranteed loan (Guarantee Fund).

OP EIC resources are supplemented by several programs financed from the state budget: the Guarantee 2015 to 2023 and VADIUM programs (guarantee instruments implemented by ČMZRB), the TRIO program to support applied research and experimental development and the follow-up TREND program, and programs of the Technology Agency of the Czech Republic such as EPSILON and GAMA subroutine. In particular, state-sponsored guarantee instruments have given many entrepreneurs seamless access to bank loans to finance export or production activities or operating and capital expenditures, and have proven to be extremely flexible and prompt tools for mitigating the effects of coronavirus epidemics on Czech firms; businessmen.


European Commission - Survey on the Access to Finance of Enterprises (SAFE). Czech Republic 2020, available at https://ec.europa.eu/growth/access-to-finance/data-surveys/

2019 SBA Factsheet. Czechia. European Commission, available at https://ec.europa.eu/growth/smes/business-friendly-environment/performance-review_en

Atradius, Payment practices Barometer 2020 – Results for Czech Republic, https://atradius.cz/publikace/payment-practices-barometer-czech-republic-2020-trade-credit-slashed-during-pandemic-amid-concern.html#

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