Access to finance for start-ups in the western Balkan countries

University of Novi Sad
UNESCO chair for entrepreneurial
studies
Muhamed Hamidović
Possibilities and limitations of financing start-up
businesses in the western Balkans
Master thesis
Novi Sad, 2012.

Unesco chair for entrepreneurial studies
Univerzitet u Novom Sadu
UNESCO chair for entrepreneurial studies
Ključna dokumentacijska informacija
Redni broj:
RBR
Identifikacioni broj:
IBR
Tip dokumentacije:
TD
Monografska dokumentacija
Tip zapisa:
TZ
Tekstualni štampani materijal
Vrsta rada (dipl., mag., dokt.):
VR
Dipl. master rad
Ime i prezime autora:
AU
Muhamed Hamidović
Mentor (titula, ime, prezime, zvanje):
MN
Dr.Bahrija Umihanić, redovni profesor
Ekonomskog fakulteta u Tuzli, gostujući
profesor na UNESCO katedri.
Naslov rada:
NR
Mogućnosti i ograničenja u finansiranju start-
up kompanija u zemljama zapadnog Balkana.
Jezik publikacije:
JP
Engleski jezik
Jezik izvoda:
JI
srp. / eng.
Zemlja publikovanja:
ZP
Republika Srbija
Uže geografsko područje:
UGP
AP Vojvodina
Godina:
GO
2012
Izdavač:
IZ
autorski reprint
Mesto i adresa:
MA
Novi Sad, Trg Dositeja Obradovića 5

Fizički opis rada:
FO
(10 / 116 / 3 / 18 / 87 / 3)
Naučna oblast:
NO
Preduzetništvo
Naučna disciplina:
ND
Uvod u preduzetništvo
Predmetna odrednica, ključne reči:
PO
Zapadni Balkan, izvori finansiranja, start-up
kompanije, kamatna stopa, pristup finansijama,
Vladine potpore, bankarski sektor.
UDK
Čuva se:
ČU
Biblioteka Univerziteta u Novom Sadu
Važna napomena:
VN
Izvod:
IZ
1. Operativni plan poticanja malog i
srednjeg gospodarstva.
2. Zakon o poticanju malih i srednjih
poduzeća
3. Izvještaj o politikama podsticanja malih
i srednjih poduzeća u Bosni i
Hercegovini
Datum prihvatanja teme od strane
NN veća:
DP
18.1.2012.godine
Datum odbrane:
DO
Članovi komisije:
(ime i prezime / titula / zvanje /
naziv organizacije / status)
KO
predsednik: Prof.dr.Vojin Šenk, redovni
profesor Fakulteta tehničkih nauka
mentor: Prof.dr. Bahrija Umihanić, gostujući
profesor UNESCO katedre
član: Doc.dr.Dušan Dobromirov, docent
Fakulteta tehničkih nauka

University of Novi Sad
UNESCO chair for entrepreneurial studies
Key word documentation
Accession number:
ANO
Identification number:
INO
Document type:
DT
Monograph documentation
Type of record:
TR
Textual printed material
Contents code:
CC
Master thesis
Author:
AU
Muhamed Hamidović
Mentor:
MN
Bahrija Umihanić Ph.D, professor at the Faculty
of Economics of Tuzla, visiting professor at
UNESCO Chair
Title:
TI
Possibilities and limitations of financing start-up
businesses in Western Balkans
Language of text:
LT
English
Language of abstract:
LA
eng. / srp.
Country of publication:
CP
Republic of Serbia
Locality of publication:
LP
Province of Vojvodina
Publication year:
PY
2012
Publisher:
PU
Author
Publication place:
PP
Novi Sad, Dositej Obradović Square 5

Physical description:
PD
(10 / 116 / 3 / 18 / 87 / 3)
Scientific field
SF
Entrepreneurship
Scientific discipline
SD
Introduction to Entrepreneurship
Subject, Key words
SKW
Western Balkan, source of funding, start-up
companies, interest rate, access to finance,
government support, banking sector.
UC
Holding data:
HD
Library, University of Novi Sad
Note:
N
Abstract:
AB
1. Operational plan for the promotion of
small and medium enterprises.
2. Law on the promotion of SMEs
3. A report on policies to encourage small
and medium enterprises in Bosnia and
Herzegovina
Accepted on Scientific Board on:
AS
January 18th, 2012
Defended:
DE
Thesis Defend Board:
DB
president: Vojin Šenk Ph.D, professor at the
Faculty of Technical Science
mentor: Bahrija Umihanić Ph.D, visiting
professor at the UNESCO Chair.
member: Dušan Dobromirov Ph.D, assistant
professor at the Faculty of Technical Science.

ABSTRACT
The abandonment of the socialist system of the former Yugoslav republics resulted in a
series of changes in the period of transition, which consisted of the abandonment of a planned
economy, the emergence of a free market, defining private equity, i.e. ownership rights and
the presence of market competition. The focus of market economy is an individual, that is,
their personal interests. Furthermore, market economy prejudices the individual's personal
engagement wherein they achieve a direct benefit – profit - by forming the personal economic
subject, thereby contributing to the community as a whole indirectly. The very process of
initiating a business act encompasses a wide range of activities, finances as a key factor being
the research subject within the framework of this thesis.
Starting from the sector structure both in the entire European economy and in the countries
of the western Balkans as well as the participation of small and medium companies in a total
amount of enterprises which perform their business activities, it is clear that small and
medium companies represent the backbone of the economy of every country. In that sense,
the creation of new enterprises as an assumption of the economic development and the growth
of employment represents an activity which appears with many challenges in a given process.
The financing of the initial business activities is a key factor in a successful realization of a
business idea, which represents a realistic obstacle and a real problem to entrepreneurs in
research. It is exactly the ways and modalities of financing the newly formed companies in
the countries of the western Balkans that is the fundamental theme and matter of this research.
The research encompasses available sources of financing, that is, the possibilities and
restrictions of the acquirement of financing resources for the owners of new companies in the
research time period. It will also try to answer the question whether and to what extent the
available sources of funding in the countries explored (Croatia, Serbia and Bosnia and
Herzegovina) are adjusted to the real needs of new venture owners.
In this work, the available sources of funding for new venture owners in the countries of
the western Balkans are presented systematically and in detail with a particular emphasis on
the situation of a capital market in Bosnia and Herzegovina. An empirical research, consisting
of two parts, was made for the needs of the work. In the first part, a great number of credit
clerks, employees of micro-credit organisations, government officers on all levels of
government were contacted so as to gain information on the range of financing means
intended for this segment as well as on their view of the feasibility of financing a newly-
formed company. Inputs, based on which the writing of this work was achievable, were
gained by using the interview method with a set of previously determined questions. The
second part of the empirical research was focused on entrepreneurs in Bosnia and
Herzegovina so as to find out what they think about the existing financing products in a
capital market. The goal of the research was to determine if the financing products in a captial
market in Bosnia were suited to the needs of entrepreneurs in financing their initial business
activities.
The most important econometric tool that was used was the Student t-test, based on which
the set hypotheses were tested.
Key words: new venture owners, sources of funding, financial support to startup companies,
countries of the western Balkan.

Content
1. INTRODUCTION...................................................................................................................................1
1.1.RESEARCH AREA..............................................................................................................................2
1.2.RESEARCH QUESTIONS....................................................................................................................2
1.3.THE GOAL AND HYPOTHESES OF THE RESEARCH............................................................................3
1.4.THE METHODOLOGY OF THE WORK................................................................................................3
1.5.THE PLANNED CONTRIBUTION OF THE THESIS TO THEORY AND PRACTICE..................................5
1.6.THE COMPOSITION OF THE WORK..................................................................................................5
2. LITERATURE REVIEW...........................................................................................................................6
3. CAPITAL MARKET IN FUNCTION OF DEVELOPMENT OF ENTREPRENEURSHIP IN THE REPUBLIC OF
CROATIA..................................................................................................................................................8
3.1.VENTURE CAPITAL FUNDS AS A POTENTIAL SOURCE OF FUNDING FOR NEWLY-FORMED
COMPANIES IN CROATIA.........................................................................................................................8
3.1.1. The Croatian Angel Network (CRANE)..................................................................................9
3.2.FINANCING THROUGH COMMERCIAL BANKS IN CROATIA..............................................................9
3.3.THE GOVERNMENT´S SUPPORT MEASURES AND FINANCIAL STIMULUS FOR START-UP
COMPANIES IN CROATIA.......................................................................................................................12
3.3.1.HAMAG–The Croatian Agency for Small Business.................................................................14
3.3.2.HBOR–The Croatian Bank of Reconstruction and Development HAMAG...........................16
4.PRESENT STATE IN THE CAPITAL MARKET OF REPUBLIC OF SERBIA THROUGH PRISM OF
DEVELOPMENt OF ENTREPRENEURSHIP..............................................................................................18
4.1.VENTURE CAPITAL IN SERBIA AS A SOURCE OF FUNDING THE ENTREPRENEURIAL ACTIVITIES
..................................................................................................................................................18
4.2.THE INFLUENCE OF THE MONETARY POLICY OF REPUBLIC OF SERBIA ON THE TREND OF
INTEREST RATES IN THE BANKING SECTOR...........................................................................................19
4.2.1. The offers of commercial banks in Serbia for the newly-formed enterprises (startups)...23
4.3.PUBLIC SUPPORT IN FUNCTION OF AFFIRMATION OF ENTREPRENEURHIP AND POTENTIAL
ENTREPRENEURS IN SERBIA.................................................................................................................25
5.FINANCIAL PRODUCTS AND SOURCES OF FUNDING ON THE CAPITAL MARKET IN BOSNIA AND
HERZEGOVINA......................................................................................................................................28

5.1.VENTURE CAPITAL AS A SOURCE OF FUNDING FOR STARTUPS IN BOSNIA AND HERZEGOVINA
..................................................................................................................................................28
5.2.CREDIT POLICY OF COMMERCIAL BANKS IN BOSNIA AND HERZEGOVINA....................................30
5.3.THE STRUCTURE AND PRESENT STATE OF BANKING SECTOR IN BOSNIA AND HERZEGOVINA
.........................................................................................................................................................32
5.4.MICROFINANCE INSTITUTIONS IN BOSNIA AND HERZEGOVINA...................................................36
5.5.POSSIBILITIES AND LIMITATIONS OF LEASING IN BOSNIA AND HERZEGOVINA............................38
5.6.LEASING VERSUS BANK LOAN........................................................................................................41
5.7.REVIEW OF THE OPERATIVE LEASING............................................................................................45
5.8.GRANTS AND GRANT OPPORTUNITIES FOR STARTUPS AND GOVERNMENTAL SUPPORT IN
BOSNIA AND HERZEGOVINA..................................................................................................................46
5.8.1. Legal and constitutional terms and barriers for support of entrepreneurial activities in
Bosnia and Herzegovina........................................................................................................................46
5.8.2. Grants and SME support in Federation of Bosnia and Herzegovina......................................46
5.8.2.1. Development Bank of Federation of Bosnia and Herzegovina ....................................49
5.8.2.2. Loan Guarantee Funds as instruments of financial support for entrepreneurs and
SME´s in Federation of Bosnia and Herzegovina...................................................................................51
5.8.2.2.1.Guarantee Fund of Association for the Development NERDA - Tuzla.............52
5.8.2.2.2.Guarantee Fund of Sarajevo Regional Development Agency-
SERDA....................................................................................................................................................53
5.8.2.2.3.Guarantee Fund of the Business Service Centre Zenica of the Government of
Zenica-Doboj Canton.............................................................................................................................55
5.8.2.2.4.Guarantee Fund of Association for Enrepreneurship and Business – Link..55
5.8.3. Grants and SME support in Republic of Srpska......................................................................56
5.8.3.1. Republic of Srpska - Loan Guarantee Funds in function of favorable business
environment..........................................................................................................................................62
5.8.3.1.1. Loan Guarantee Fund of the Government of Republic of Srpska.....................62
5.8.3.1.2. LGF of PREDA – Development Agency of the Prijedor municipality ................63
5.9. CONCLUDING ASSESSMENT OF THE SITUATION IN THE CAPITAL MARKET IN B & H...................66
6.WORK METHODOLOGY......................................................................................................................67
6.1.RESEARCH SAMPLE.......................................................................................................................67

7.ANALYSIS OF THE RESEARCH RESULTS..............................................................................................68
7.1.BASIC CHARACTERISTICS OF A1 SURVEY FORM SAMPLE..............................................................68
7.2.DATA ANALYSIS.................................................................................................................………….72
7.3.TESTING THE HYPOTHESES...........................................................................................................80
8.CONCLUSION.....................................................................................................................................88
9.LITERATURE.......................................................................................................................................91
10.APPENDIX........................................................................................................................................95

Possibilities and limitations in financing startup business in the WBC Page 1
Chapter 1
1.Introduction_______________________________________________________________
Based on my research, through dialogue with businessmen and based on feedback received
from the companies when asking certain questions about their past and current business
activity, proper sources of funding occured as a key issue in realizing a business idea. In this
sense, this paper aims to provide insight into the current state of availability of funds to start
ups, and analysis of opportunities and constraints in financing their business activities. As a
matter of analysis, the main ways of financing business activities in Bosnia and Herzegovina
are considered with the exception of personal resources of funding, with addition of factors
that encourage or limit the conduct of activities in an environment which is, according to
entrepreneurs, in largely non-stimulating in terms of access to finance. This paper identifies
current situation in Bosnia and Herzegovina, and gives some conclusions and
recommendations in terms of overcoming obstacles in obtaining adequate funding for the
initiation or expansion of existing business activities through unification of opposing interests
of financial institutions that operate on the B&H market as a creditor and small and medium-
sized enterprises as users of their products. The main goal is to be on the top of reported
problems in this area, offer concrete solutions in terms of stronger linkages between credit
lines, lenders in B&H with the demand of start ups. This work is guided by the most recent
academic findings and taking into account the prevailing attitudes in the professional
literature gives an overview of the available resources in B&H through their proper
classification. Also, by analyzing the advantages and drawbacks of available financing
models provides a good basis for understanding the problems of financing small and medium
enterprises.
In terms of access to finance, when compared to the circumstances in the region (Croatia,
Republic of Serbia), the situation in Bosnia and Herzegovina can be put in the similar context
in terms of funding and preconditions when applying for a loan. Entrepreneurs in most cases,
use of personal sources of funding replace with available credit lines offered by commercial
banks. Rarely they become beneficiaries of some form of government subsidies (interest
subsidies, grants, guarantees). In this sense it is justified to emphafize the fact that in the
period of the past ten years, commercial banks in the region as well as in B&H, profiled as a
leading lenders and financiers of entrepreneurial activity. Further on, through this paper the
credit policies of commercial banks in the region as well as in B&H will also be analyzed.
Global economic crisis in the last few years, caused the new stringent credit requirements,
giving priority to debt collection and remediation of losses instead of strengthening the
existing loan portfolio.
In this context, this paper will also partly through a solid understanding of banking
procedures, partly through the introduction of available financial products on the market,
create a part of the solution that will overcome the difficulties in access to finance for
entrepreneurs, which is the main problem highlighted by same in carrying out their business
activities. In professional literature, financing entrepreneurial activities is classified into two
parts most frequently, namely, as follows: a)financing from personal sources of funding; and
b) external source of funding (via debt and ownership share).

Possibilities and limitations of financing start-up businesses in the WBC Page 2
The analysis of the performed research in the countries of the western Balkans (Doing
Business report, GEM report) shows the approach to finance in a way as to measure and
compare the amount of the costs necessary to start a business in every country of the western
Balkans, that is, the usage of the indicators formed on the basis of the view of general
attitudes of the experts without deeper revisions, descriptions and comparative advantages of
each of the available sources of funding. The GEM report, which encompassed 59 world
economies (the countries of the western Balkans among others) in 2010, shows modest grades
of the possibilities of the approach to sources of funding. The grade is about 2.03 in Bosnia
and Herzegovina and 2.40 in Croatia, which clearly indicates that the available funds of the
sources of funding are mostly unfavourable, inadequate, and do not correspond to the needs of
entrepreneurs, since the maximum grade is 5.1
A more thorough depiction of a capital market
in Bosnia will be provided by examining the attitudes and views of entrepreneurs in the area.
Therefore, the writing of a thesis entitled 'The possibilities and restrictions of financing a
startup companies in the countries of the western Balkans' is going to give answers to
questions about the adequacy of available sources of funding from an entrepreneur's point of
view based on their own experience, thus contributing to better understanding of problems,
which comes across as a realistic need in the analysis of the approaches to sources of funding;
and to formulating assumptions for the determination of adequate instruments of a financial
support for a segment of small and medium enterprises.
1.1. Research area__________________________________________________________
The conducted research refers to establishing the attitudes and views of entrepreneurs in the
territory of Bosnia and Herzegovina when it comes to the available sources of funding,
planned for the time period October – December 2011. The research was carried out via a
structural poll, containing questions about entrepreneurs' point of view on the adequacy of the
existing financial products in the capital market in Bosnia in contrast to their needs for
finance.
In addition, via a descriptive method, the work examines and explains the available sources
of funding for new venture owners in the western Balkans with a particular emphasis on the
situation in Bosnia and Herzegovina.
1.2. Research questions______________________________________________________
The work is occupied with the following questions:
1. Are the credit lines of commercial banks in Bosnia and Herzegovina designed
according to the needs and abilities of startup owners ?
2. Are the credit products of the micro-credit institutions in Bosnia and Herzegovina
adjusted to the financing needs of startup owners?
1
Global Entrepreneurship Monitoring Report, 2010.

3. Does governmental support in Bosnia and Herzegovina (subsidy, grants) due to
rigorous criteria allow startup owners to access initial financing of the entrepreneurial
activity?
Besides this, this work will provide an answer on question about existing limitations which
occur, that is, most common obstacles which new venture owners face when applying for
financing.
1.3. The goals and hypotheses of the research___________________________________
The goal of the research is that through the analysis of entrepreneurs' attitude, based on the
experience gained, we determine their view of the state of availability and adequacy of
financial products in the capital market in B&H in contrast with their needs.
The major thesis is as follows: The financial products in the capital market in Bosnia
and Herzegovina as well as governmental support (subsidy, grants) are not adjusted to
the actual needs of entrepreneurs in financing the initial entrepreneurial ventures.
The major thesis implied setting the following secondary hypotheses:
- H 1.1 The credit lines of commercial banks in Bosnia and Herzegovina are not
designed according to the needs and abilities of entrepreneurs in the early stages of
starting a business (the foundation and management in a couple of initial years);
- H 1.2. The credit products of micro-credit institutions in Bosnia and Herzegovina
are not adjusted to the financing needs of startup owners;
- H 1.3. Governmental support measures (subsidy, grants) in Bosnia and
Herzegovina do not, due to rigorous criteria, allow startup owners to access initial
financing of the entrepreneurial activity.
1.4. The methodology of the work____________________________________________
After the exact definition of the above-mentioned goal of the research, the area and research
question of the thesis was defined too. Afterwards, the available literature was examined
(textbooks, magazines, periodicals, web pages of the competent institutions) and the analysis
of inputs gained via the interview method in a dialogue with credit officials, government
officials and employees of micro-credit organisations. Overview of data sources is shown in
the next table:

Types of data Source Purpose Time period
Secondary data BARS,BAFBIH
Regulatory
framework in the field 02 – 05. 2011.
EVCA,NBS,CNB Professional articles 02 – 05. 2011.
EIB;WB,EBAN Best practices 08 – 10. 2011.
Primary data Entrepreneurs in B&H Questionnaire (A1) 10 – 12. 2011.
Credit officials,
government officials Interview 02 – 05. 2011.
Table.1.1.- Overview of data sources
The sources of additional data are also the domestic and foreign articles from the explored
area. In order to gather the primary data so as to write the work, it was necessary to form a
poll which was then distributed to entrepreneurs via online polls in the period starting from
October 2011 as well as individual interviews with entrepreneurs in the same period.
Research schedule is shown in the table 1.2:
Pattern Instrument
Layout of the
instrument
Distribution
method Population
Time
period
30
entreprises in
B&H
Questionnaire
(A1)
19 questions
Online
Venture
owners 10-12.11.g
10% open
90% closed Interview
Table 1.2.- Research schedule
The data were gathered by using a questionnaire on 30 companies in Bosnia and
Herzegovina, and the data gathered were elaborated by using an adequate descriptive analysis,
whereas the bivariant test was used for the major questions and MS Excel for a statistical
analysis. Likewise, interviewing 10 credit officials, 5 employees of micro-credit organisations
and government officials resulted in the necessary information which helped describe the
existing situation in the capital market in Bosnia and Herzegovina.

1.5. The planned contribution of the thesis to theory and practice_________________
This work aims to question attitudes of entrepreneurs, that is, a representative sample, to
available financial products in the capital market in Bosnia and Herzegovina. The scientific
goal is determine through an analysis of the attitudes of entrepreneurs, based on the acquired
experience, their view of the availability of financial products in the capital market in Bosnia
and Herzegovina and to deepen the knowledge in the field of access to finance in the studied
area through a description of available sources of finance for new venture owners. On the
basis of the empirical research of limitating factors for the placement of financial resources
and the identification of the factors affecting more or less the availability of sources of
funding for new venture owners, the practical goal of this thesis is to create the foundation
for a practical usage of the results in forming certain instruments of a financial support to the
examined segment in the form of creating loan guarantee funds.
1.6. The composition of the work_____________________________________________
Taking into consideration the defined research subject and the goals of the very research,
the introductory part formed as chapter one is going to deal with the presentation of the
research area, research questions, hypotheses and methodology of the paper as well as the
planned contribution to theory and practice.
Chapter two, entitled Literature review, is going to provide the major views from literature
on financing the initial entrepreneurial activitieses, which is the subject of this work.
Chapter three is going to deal with the current situation in the capital market in Croatia, that
is, available sources of funding for new venture owners in that research area.
Chapter four encompasses the present state of financial sector in Serbia, Venture Capital as a
source of funding the entrepreneurial activities as well as the formal credit market and
Governmental support in function of startup funding.
Chapter five is going to offer an overview on access to finance in Bosnia and Herzegovina
through a description of the available sources of funding for new venture owners, starting
from the analysis of a private equity market and analysis of a banking system and ending with
the analysis of governmental support for startup companies. A particular emphasis is on the
situation in Bosnia and Herzegovina via a descriptive analysis of all the currently existing
sources of funding for entrepreneurs in the examined area. Also, comparative method will be
used in order to determine the least expensive financial product when providing case analisys.
Chapter six is concerned with the research methodology and sample formation.
Chapter seven encompasses the analysis of the obtained research data and testing of
hypotheses.
Chapter eight provides conclusive thoughts with certain references wherein a suggestion for
solving a research problem is made.
Chapter nine provides the bibliography used in writing the master thesis.
Chapter ten offers appendix involved in master thesis.

Chapter 2
2. Literature review________________________________________________________
The problems of financing entrepreneurial activity is probably as old as entrepreneurship
itself and is mentioned in documents as far back as 2000 years ago a.d. The development of
various financial institutions throughout history has affected the emergence of different
theoretical models of financing entrepreneurship. The specificity of the research area imposed
referring to recent literature, due to the fact that VC funds as one of the possible sources of
finance went through a real expansion in 1980s in the USA and that their importance in the
whole world additionally grew with the development of telecommunications and the internet,
i.e. fast-growing insdustries. Financing the initial entrepreneurial activity is classified in
literature into two parts most frequently, namely, as follows: a) financing from personal
sources of funding and b) financing from external sources of funding (via debt and ownership
share). Each of the mentioned ways of financing from external sources has both advantages
and shortcomings, so Alterowitz R. & Zonderman, J. state that 'altough there is a multitude of
ways to raise the money, some are more productive than others'2
Although there are no written rules on the way different entrepreneurs should finance their
business enterprises, there are however several guidlines that should be used in the process.
Primarily, this refers to the developmental phase in which an entrepreneur is, i.e. the moving
trend in an industrial branch. (J. Sherman, A. 2005).In the initial phase of development,
beginners usually use the model 3F and the public support system via state loans. Business
angels appear in the early stage of creation, in the fast-growing branches where they expect a
high rate of income on the invested capital, whereas the funds of a risk capital emerge in a
later phase of development, as shown in the next picture:
Picture 1. – Financing according to the life cycle of enterprise3
2
Alterowitz, R. & Zonderman, J. (2006): Financing your business made easy, Entrepreneur Press, page 1
3
Source: http://apelbaum.wordpress.com/2011/02/07/the-startup-leap-to-success/ ( 25.12.2011.)

On the other hand, the access to banking loans is restricted to the owners of newly-formed
companies due to clearly defined banking procedures which demand that there are financial
reports within a two-year period and adequate safety measures due to a greater estimated risk.
Considering the fact they are in the phase of creation or the initial phase of business, startup
companies are regarded as risky investments for lenders and do not have the access to a
formal credit market. (J. Leach, C. & W. Meliche R. 2008).
Banking procedures clearly define the conditions necessary for obtaining a loan in
accordance with their business policies, banks make credit products that are placed with the
intention to achieve maximum profit with a minimum risk. The differentiating factor for
certain commercial banks in one country or region is the interest rate which represent the
price of the approved financing. The guidelines that determine the quality of a credit demand,
that is the credit ability of a potential user of financing are more or less the same both in
Europe and the USA. In that sense, there is a unanimous opinion in literature that commercial
banks have a certain aversion to risks and financing start-up companies IS a risky business (R.
Barringer, B. & R. Duane I. 2007).
A private equity industry is developed the most in the USA and in Europe the United
Kingdom is supreme. In literature, the complete industry is seen through a prysm in several
European countries, whose private equity markets dominate over the entire European market.
The dominant private equity companies are those in the United Kingdom, having gained 45,6
billion euro in 2005, which is 64% in relation to the entire Europe. France was second,
gaining 11,5 billion euro (16%) and Germany was in the third place with 2,9 billion euro
(4%)4
. An average financing per company was 13 million euro in 2007 and the total sum of
investments in Europe for start-up companies was 2.5 billion euro in the same year.5
Although the private equity industry started its expansion in the USA, the development of
informational technologies in the last late millenium affected industrial expansion on the
whole world, so VC funds in Europe are beginning to invest ever more important in
entrepreneurial ventures and compete with the leading world market of the entrepreneurial
capital. This is best seen in the investment of approximately 8 billion dollars made by venture
capitalists in Europe in 1998, which is less than half the amount invested in the USA in the
same year. In 2005, the sum was 32 billion dollars, whereby the amount of the achieved
investments in the USA was surpassed by 5 billion dollars.6
The revision and quantitative analysis of funds investments of a risky capital in Europe
was achievable thanks to the data basis PEREP Analytics, monitoring and evaluation of the
gained investments across regions, single countries, investment phases, agricultural branches
and individual sums. PEREP Analytics is a platform made by the European Venture Capital
Association, which annually provides a report of investment activities, so their discoveries
show the range of investments of the entrepreneurial capital in eastern Europe was 1,2 billion
euro in 2007 before the emergence of the world's economic crisis (EVCA/PEREP Analytics
2008). Of the total sum, 161 million euro was invested in Serbia, 17,24 million in Croatia and
724.000 in Bosnia and Herzegovina.
4
Arundale, K. (2007). Raising venture capital finance in Europe: a practical guide for business owners,
entrepreneurs and investors, Kogan Page Publishers, page 22
5
Caselli, S. (2010). Private Equity and Venture Capital in Europe: Markets, Techniques, and Deals , Academic
Press , page 12
6
N. Gregoriou,G. & Kooli, M.& Kräussl, R. (2007). Venture capital in Europe, Butterworth-Heinemann , page 8

These data clearly point out to a small and fragmented market in the countries of the
western Balkans in comparison to the global situation, which is altogether a chance for the
developemnt in the examined area.
Chapter 3
3. Capital market in function of development of entrepreneurship in the Republic of
Croatia_
3.1.Venture Capital funds as a potential source of funding for newly-formed companies in
Croatia_
In Croatia, VC is regulated by the Investment funds law as open investment funds of a risky
capital with a private offer. 7
It defines foundation conditions, management modalities as well
as mutual rights and the obligations of the qualified investors, venture capital funds and
associations for the management with VC funds. There was only one VC fund in Croatia up
to 2008 – Quastus Private Equity Capital formed in 2003. It made investments into 7
investment projects, four of which were startup companies. The alternative form of financing
through the venture capital funds can further be seen through a prism of forming another VC
fund – NEXUS Alpha was formed in October 2010 and had 3 investments in companies in
their early stages. Although they had a significant sum (71 million euro), there is the opinion
that the mentioned funds as the sources of finance were not available to the majority of the
owners of startup companies.
In the research period (2011) there appeared significant changes in this sector. In order to
raise investment activities and to take measures so as to improve economy, the government of
Croatia initiated the forming of additional 5 VC funds in a way as to ensure an additional
kuna from the budget for every obtained kuna. Five funds were created: Honestas Private
Equity partners, Alternative Private Equity, Quaestus Private Equity II, Nexus Private Equity
partners and Prosperus invest, which obtained work permits from HANFA (Croatian Agency
for Financial Service Supervision).
With a public invitation of the qualified investors, five Funds for Economic Cooperation
gained 1.075 billion kuna of private equity and the government of Croatia ensured an
additional billion kuna, which represents to the total sum of 2 billion kuna a significant
potential for financing fast-growing companies in Croatia. All startup companies formed in
Croatia, performing their activities mainly in Croatia, can be users of financing this
instrument. The funds were formed to a 10-year period, with the possibility of extension to a
2-year period. Although there wasn't a single investment in the first year following the
foundation, the real evaluation of the effects of the government measures and availability to
the owners of newly-formed companies is going to require a certain period of time.
7
Zakon o investicijskom fondu (NN 150/05), Glava V , Odjeljak 1.

Due to an important role in the mediation between entrepreneurial ideas and the existing
VC funds in Croatia, I would like to emphasise the role of the Croatian Private Equity and
Venture Capital Association (HVCA), which enables the owners of startup companies in their
search of financing to present their business ideas to domestic and foreign investors in the
competition of VentureXchange South East Europe. By organising the competition and
presentations, there is the possibility to present entrepreneurial ideas in the surrounding
countries (Slovenia, Bosnia, Serbia, Montenegro, Macedonia, Albania) to a wide range of
investors in the best way possible.
3.1.1 The Croatian Angel Network (CRANE)____________________________________
The foundation of the CRANE in 2008 enabled innovative startups to ensure financing an
entrepreneurial idea in the amount of 20.000 euro to 100.000 euro in the early stage of
development via a domestic or foreign investor.
Founded as a non-profit organisation gathering informal individual investors, the CRANE
gathers 14 successful entrepreneurs who wish to improve the acquired capital through
investments in innovative projects with a great growth potential. In addition to capital, the
CRANE participates with their advice in creating a common strategy of a newly-formed
subject and helps overcome a company's initial difficulties with consulting. By entering a
proprietary share, business angels are directly interested in providing help so that the project
should be commercialised in the best way possible. Business angels in Croatia are willing to
invest in all economic sectors and the period of return is 3 to 5 years. Up to my research, 10
projects in total were financed in this manner, that is, by business angels via the CRANE. The
owners of startup companies can apply online at www.crane.hr with their business idea for the
network. The application procedure is as follows: the projects evaluated as those of interest
are chosen from the base of the accepted projects – the system Angelsoft and are presented to
investors in a showcase, which takes place twice a year according to the plan.
3.2. Financing through commercial banks in Croatia_______________________________
The policy of commercial banks in Croatia is identical to the one of commercial banks in
Europe when it comes to high risk placements. All countries in the western Balkans have
strict criteria and clear procedures in the placement of financial products to their clients.
Startup companies are generally seen as very risky investments, so the conditions of financing
represent a rather limiting factor and not an encouraging one when it comes to accessing
finances. Average interest rates of commercial banks in Croatia are shown in following graph:

Graph 1. - Interest rates for bank loans in kuna without a currency clause8
The graph shows that the interest rate on short-term loans not indexed to foreign currency
had a downward trend in the time period between the second quarter of 2010 and second
quarter of 2011, decreasing by 97 basis points. Interest rates for long-term loans approved
without currency clause also decreased, mostly during the third quarter between of 2010 and
the third quarter of 2011, decreasing by 138 basis points.
Graph 2. -Interest rates for bank loans in kuna with a currency clause9
8
Source: www.hnb.hr ( 20.12.2011.)

The above graph shows some fluctuations in interest rates for short-term loans, approved
with a currency clause in 2010, although they decreased by 48 base points by the end of the
research period (the third quarter of 2011), compared to the beginning ot the research (the first
quarter of 2010). Interest rates for long-term credits decreased by 174 points in the same
period. In order to decrease the effects of the world economic crisis and sparkle economic
growth, Croatian government took some measures in monetary policy. The rate of the
compulsory reserve of commercial banks was thus decreased in February 2010 from 14% to
13% with the intention to encourage their greater credit activity. In whis way, approximately
2 billion kuna was released in the sense of a credit potential, which were directed towards
economy by HBOR as the mediator bank, cooperating with commercial banks. Even though a
five-time greter level of free financial resources of banks in relation to the previous year
resulted in low overnight interest rates in the interbanking market during the entire year, long-
term interest rates for credits decreased only slightly, to which the trend of increasing bad
credits of banks contributed further. 10
The model A+ (The programme of crediting for economic recovery and development) is a
programme which was accepted by the Croatian government in 2011 functioning as a
stimulus of credit activities with the couuntry's active co-financing of sustainable
entrepreneurial ventures.
It also presupposed that the users could be all entrepreneurs in the territory of Croatia,
under the condition they meet the following standards11
:
1. Indebtedness coefficient (total charge/assets) <=0,90
2. The indicator of the current liquidity (fleeting assets/short-term liabilities) >=0,75
3. Net income > 0
The above-mentioned model that would make the existing offer of commercial banks more
attractive for entrepreneurs was implemented in such a way that the government, that is, the
Ministry of Finance, made a three-year contract with commercial banks, which directed 1
billion kuna with a 3% interest rate to HBOR as the authorised institution for credit financing
of developing projects and entrepreneurship in general. Furthermore, in 2010 HBOR
announced a Public Announcement to commercial banks to participate in financing credit
placement of banks in the amount of 40 %, with the remaining 60% being financed by the
country, that is, HBOR. The criterion for the selection of banks is the price of the interest rate
that commercial banks are willing to offer for their 60% participation in financing. Since the
interest rate of HBOR is 2,8%, the final price of financing for the enterprise would be a
specific rate dependent on the offered price of financing a commercial bank which
participates in the public auction. The maximum amount that may be assigned to the
companies is up to 80 million kuna.
9
Source: www.hnb.hr ( 20.12.2011.)
10
„Godišnje izvješće“ Hrvatska Nacionalna Banka, 2010, page 20
11
Source: www.hbor.hr

In four auctions held and through the model A+, HBOR has approved a total of 986 million
kuna funds on the basis of which the commercial banks were required to approve funding of
almost almost 2.5 billion kuna In four published ends, the interest rate for the entrepreneurs
in this model ranged from 4.51% in the first auction to 3.73% in the last auction.
This model's credits are intended to financing current assets, and the maintenance of the
current liquidity. Unlike this model, the model B+, the government's another measure that
functions in mediating between the opposed interests of commercial banks on one hand and
companies on the other, acts as a guarantee fund with the capacity of 1 billion kuna.
Individual guarantees are issued from this guarantee potential for financing approved by
commercial banks in 25% share of the principal of financing approved and for all
entrepreneurs registered in Croatia, independent of the kind of industry. In other words, the
startup owners who are not capable of ensuring sufficiently the collateral for financing the
initial entrepreneurial ventures can do it in this manner.
Just like in the case with the model A+, public announcements for auctions as well as the
complete administration procedure is conducted by HBOR. According to the conducted
research, only 2 auctions were performed by the end of 2011 due to small interest of
entrepreneurs for this kind of support. A guaranty for an individual credit can be 30% top of
the credit funds, but not more than 50 million kuna.12
3.3. The government's support measures and financial stimulus for startup_companies in
Croatia
The SME sector support, including a financial support to new venture owners is within the
jurisdiction of the Ministry of Economy, Entrepreneurship and Work of the Republic of
Croatia, which suggests and carries out the operative plan of entrepreneurship for every fiscal
year based on the government's issued programme of stimulating small and medium
entrepreneurship within a 4-year period.13
The operative plan is used to define the amounts of
financial support for every budget year, for all goal groups identified as the priority in the
mentioned programme. It also determines the bearers of activities of stimulating measures for
startup companies, primarily HAMAG (the Croatian Agency for Small and Medium
Economy) and HBOR (the Croatian Bank of Reconstruction and Development).
The following table 2.presented on the next page shows an analytical description of all
supports in stimulating areas for the period of 2008-2010:
12
„Jamstva model B+“, HBOR 2011
13
„Zakon o poticanju malog gospodarstva (NN 29/02, 63/07), član 5.

Table 2. - The analytical description of supports given in stimulating fields for the period 2008-201014
14
Operativni plan poticanja malog i srednjeg gospodarstva za 2011.god Republike Hrvatske , page 3
HRK (kuna currency)
STIMULATING
AREAS/PROJECTS
2008. 2009. 2010. 2008-2010.
Supportsgiven
Thesumof
supportsgiven
Supportsgiven
Thesumof
supportsgiven
Supportsgiven
Thesumof
supportsgiven
Supportsgiven
Thesumof
supportsgiven
COMPETITIVENESS AND INOVATIONS
Strengthening competitiveness
of small business 2.624 106.332.199 1.210 55.773.672 720 61.601.000 4.554 223.706.871
Competitiveness via innovation 248 6.119.190 208 7.281.700 144 7.000.000 600 20.400.890
Gazelles 0 0 30 9.000.000 20 9.500.000 50 18.500.000
Gazelle liability 0 0 30 8.700.000 30 8.700.000
Female entrepreneurship 1.117 8.100.300 278 4.500.000 1.001 10.540.000 2.396 23.140.300
The entrepreneurship of the
young, beginners and the
disabled 477 3.530.700 119 3.000.000 497 4.994.000 1.093 11.524.700
Entrepreneurship in culture 70 2.000.000 108 4.000.000 136 4.000.000 314 10.000.000
Clusters 47 5.900.000 37 4.900.000 54 4.900.000 138 15.700.000
Collective entrepreneurship 45 2.650.000 56 3.500.000 42 3.500.000 143 9.650.000
STIMULATING
AREAS/PROJECTS
2008. 2009. 2010. 2008-2010.
Supportsgiven
Thesumof
supportsgiven
Supportsgiven
Thesumof
supportsgiven
Supportsgiven
Thesumof
supportsgiven
Supportsgiven
Thesumof
supportsgiven
ENTREPRENEURIAL INFRASTRUCTURE
Business zones construction 135
113.210.00
0 77
68.210.00
0 138 80.997.487 350 262.417.487
Entrepreneurial support
institutions 73 6.373.000 66 6.373.000 42 4.603.000 181 17.349.000
ENTREPRENEURSHIP EDUCATION
Entrepreneurship education 142 6.402.800 117 4.211.850 154 4.422.800 413 15.037.450
CRAFT
Craft education 246 5.151.999 306 7.355.999 364 8.008.007 916 20.516.006
Craft qualifications 654 2.079.851 1.063 2.550.870
1.29
5 2.513.794 3.012 7.144.515
Traditional and artistic craft
development 404 4.189.000 303 6.253.000 238 5.738.000 945 16.180.000
ENTREPRENEURSHIP PROMOTION
Entrepreneurship promotion 52 2.822.555 58 3.404.267 46 1.656.300 156 7.883.122
STIMULATION OF INTERNATIONAL COMPETITIVENESS AND INTERNATIONALISATION
Croatian export offence 126 9.884.100 0 0 0 0 126 9.884.100
Strengthening international
competitiveness 0 0 159
35.695.77
4 115 27.042.429 274 62.738.203
Croatian economy
internalisation 0 0 55 4.291.900 53 3.847.400 108 8.139.300
TOTAL 6.460 284.745.694 4.250
230.302.0
32 5.089 253.564.217 15.799 768.611.944

In the table, one can see that the financial support, given to the owners of start-up companies
(marked as The entrepreneurship of the young, beginners and the disabled) amounts
11.524.700 kuna of the total sum of 768.611.944, which is 1,49% of the total support given in
this period. In the same period, merely 1.093 or 6% of the total sum of 15.779 individual
supports was directed to the examined goal segment. Female startup owners are excluded
from this, being a special segment financially supported by government grants (marked as
Female entrepreneurship). Financial support given to the female entrepreneurs is 23,140,300
kuna of the total sum of 768,611,944 HRK, which represents 3% of total grant allocated in
this period. In the same period the total number of grants, them 2396 or 16% was directed
towards this special goal segment.
3.3.1. HAMAG – The Croatian Agency for Small Business_________________________
HAMAG was formed by putting into force the law on stimulating small business15
, whereby
the Croatian Guarantee Agency (CGA) ceased to exist with the goal to transmit their authority
and functions and forming the central operative body to take measures from the annual
Operative plans of stimulating small and medium entrepreneurship. I am going to reduce the
activities of HAMAG in the context of my own research to those referring to: a) giving
irretrievable financial support b) issuing guarantee for the approved financing
Giving irretrievable financial support for the segments is preceded by a public
announcement at the end of the first quarter of the current year, where potential users can
apply for funding. The same procedure applies to HAMAG's issuing a guarantee for quality
projects whose creators cannot ensure a sufficiently strong collateral. The number and amount
of financial supports is shown analytically in projects defined by the operative plan in 2010:
HRK (kuna)
Projects and activities from the operative plan of
stimulating small and medium entrepreneurship
in 2010
Given supports Percentage in the
total sum
Average
Number Sum (%) Sum
Strengthening the competitiveness of small economy 720 61.601.000 24,29 85.557
Competitiveness and innovations 384 34.100.000 13,45 88.802
Craft education 364 8.008.007 3,16 22.000
Entrepreneurship education 154 4.422.800 1,74 28.719
Entrepreneurial infrastructure 138 80.997.487 31,94 586.938
Entrepreneurial support institutions 42 4.603.000 1,82 109.595
The entrepreneurship of the young, startups and
the disabled 497 4.994.000 1,97 10.048
Female entrepreneurship 1.001 10.540.000 4,16 10.529
Craft qualifications 1.295 2.513.794 0,99 1.941
Entrepreneurs' promotion 46 1.656.300 0,65 36.007
Traditional and artistic crafts development 238 5.738.000 2,26 24.109
Collective entrepreneurship 42 3.500.000 1,38 83.333
Stimulating international competitiveness and
internalisation 168 30.889.829 12,18 183.868
Total 5.089 253.564.217 100,00 49.826
Table 3.-Financial supports in projects defined by the operative plan in 2010.16
15
,,Zakon o poticanju malog gospodarstva (NN 29/02, 63/07), član 12, stav 1.
16
Izvor: Operativni plan poticanja malog i srednjeg gospodarstva za 2011.god Republike Hrvatske , str. 5

The table 3. shows that the financial support to the owners of startup companies (marked as
the Entrepreneurship of the young, beginners and the disabled) amounts 4.994.000 kuna of the
total sum of 253.564.217, which represents 1,96% of the total support given in this period.
The expenses of the supply of technology equipment, additional entrepreneurial education or
covering a part of registration expenses are exclusively defined as eligible when giving this
sort of support. The maximum sum can be 75% of the justified expenditures and at most
70.000 kuna.17
However, by analysing the data in the table 3. we can notice that the average
amount of given supports per user was about 10.000 kuna. For the sake of a more complete
analysis, one should point out that the financial support in the project entitled 'Female
entrepreneurship' are directed towards women entrepreneurs, a group wherein financing their
initial activities was planned. Female owners of startup companies are able to apply for
finances in the early stages of their business, thus increasing the participation in financing the
research segment.
The projects entitled 'Competitiveness and innovations' also enable the companies engaged
in the developmental or applied research to obtain a certain financial support in the early
stages of their activities. The irretrievable financial support refers mostly to the costs
preceding the achievement and protection of the industrial property and amounts to 15.000
kuna maximum, without the possibility to be used for other purposes.18
HAMAG ensured a
guarantee instrument facilitating entrepreneurs to obtain credit for the owners of the startup
companies who have a quality project but are not capable of ensuring an adequate collateral.
Through a guarantee programme, HAMAG guarantees a business bank which approves the
finances the return of the credit to a certain percentage of funds, depending on the guarantee
programme.
Guarantees are given for earmarked funding and fixed and current assets and the maximum
amount that can be approved is 80% of the amount of the credit principal.19
The bank keeps
the right to ask for an additional collateral, depending on its own policy and the evaluation of
the risk of financing. In general, since the government is in the background of the approved
guarantees, there is an assumption that startup entrepreneurs get better conditions for
financing on the basis of a smaller estimated risk.
The following table 4. presented next shows the depiction of all the approved guarantees in
the defined programmes, where the owners of startup companies are allocated under the
guaranty programme 'A new entrepreneur'.
17
Source: www.hbor.hr
18
Source: www.hbor.hr
19
Source: www.hamag.hr /faq-jamstva.html

HAMAG – the approved guarantees 1.1.2008. do 31.12.2010.
A guarantee programme The number
of the
approved
guarantees
The guarantee
sum (kuna)
The credit sum
(kuna)
The planned sum of
the investition
(kuna)
AGRICULTURE 201 224.724.301 465.945.541 757.275.758
A NEW ENTREPRENEUR 56 45.263.711 66.244.075 127.633.869
GROWTH AND DEVELOPMENT 67 96.850.646 232.958.348 504.045.488
PPDI 52 41.127.820 59.166.520 94.103.295
CRAFT CAPITAL 15 16.120.382 40.505.207 62.975.712
A ZONE ENTREPRENEUR 14 62.167.307 108.839.461 230.882.099
NEW TECHNOLOGIES 6 23.680.949 52.361.896 186.737.799
MICROCREDITS 7 840.000 1.200.000 1.200.000
FINANCING DISCOVERIES 1 3.278.297 4.683.282 9.340.730
TOTAL 419 514.053.412 1.031.904.329 1.974.194.749
Table 4. - The approved guarantees in guarantee programmes for the period January 1, 2008 – December
31, 2010.20
The table shows the approved guarantees in the research period, where one can notice that
the number of guarantees for startup companies in the participation of the approved
guarantees in total amounts is to 13,36%. Furthermore, the analysis established that an
averavage amount of guarantees for startup companies is 68% of the amount of the credit's
principal, and this percentage can be explained through a greater risk in financing a company
in the initial phase of development, estimated by the lender.
3.3.2. HBOR – The Croatian Bank of Reconstruction and Development________________
Unlike commercial banks in Croatia, HBOR is 100% owned by the Republic of Croatia,
which is altogether its founder. HBOR is a developmental and export bank formed with the
aim of crediting the reconstruction and development of the Croatian economy21
, providing
support to small and medium entrepreneurship is one of its basic functions. The fundamental
capital is defined by the law on HBOR in the sum of 7 billion kuna, whose pay dynamincs is
determined by the government from the state budget.
As a developmental bank, HBOR offers a wide range of credit products directed to
domestic entrepreneurs from all economic sectors. We will mention only 2 credit lines in for
which the owners of startup companies can apply.22
20
Source: Operativni plan poticanja malog i srednjeg gospodarstva za 2011.god Republike Hrvatske , page 12
21
Zakon o Hrvatskoj banci za obnovu i razvitak“, (NN 138/06).
22
www.hbor.hr.

a) The programme of crediting new entrepreneurs with the following conditions:
Users: all entrepreneurs or legal persons who are in business for up to 2 years or are starting
their own business for the first time.
Credit allocation: buying fixed and current assets (up to 15% of the amount of the total credit
can be allocative to current assets)
The lowest amount: 80.000,00 kuna
The highest amount: 1.800.000,00 kuna (credits are in kuna or in kuna with a currency clause)
Repayment period: up to 12 months
Grace: up to 3 years
Repayment period: up to 14 years including grace
Interest rate: 4% annually
Refund for application processing: 0,8% one-off to the amount of the approved credit.
Refund for resources reservation: 0,25% annualy to the amount of the approved but unused
means, starting from the passing of 30 days from the date of signing the contract.
HBOR's safety instruments:
- bonds and debentures,
- deposits,
- HAMAG's guarantee
- two guarantors for credits of 100.000,00 kuna
- other common safety instruments in banking
In case of investments via commercial banks, the final user makes deal with the
commercial bank about collateral. Owners can obtain financing either directly via HBOR's
immediate crediting or via 22 commercial banks that implement the programme within the
crediting programme.
b) The programme of crediting female entrepreneurs – female entrepreneurship
Users: trades communities, craftsmen, civillians performing activities on their own and have a
registered business in Croatia in which one or more women possess at least 51% of the capital
or are the registered owners.
Credit allocation: buying fixed and current assets (up to 30% of the amount of the total credit
can be allocative to current assets)
The highest amount: 700.000,00 kuna (credits are in kuna or in kuna with a currency clause)
Grace: up to 3 years
Pay deadline: up to 12 years including grace
Interest rate: 4% annually (The Ministry of Economy, Work and Entrepreneurship subsidises
the interest rate up to 2% maximum annually and the interest rate for credit users for the
percentage of the approved subsidy is lowered. The possibility of subsidising the interest rate
depends on the available means by the Ministry of Economy, Work and Entrepreneurship).
Refund for application processing: 0,8% one-off to the amount of the approved credit.

Refund for resources reservation: 0,25% annualy to the amount of the approved but unused
resources, starting from the passing of 30 days from the date of signing the contract.
HBOR's safety instruments:
- bonds and debentures,
- deposits,
- HAMAG's guarantee
- two guarantors for credits of 100.000,00 kuna
- other common safety instruments in banking
Also, in case of investments via business banks, the final user makes deal with the
commercial bank about safety instruments. Owners can obtain financing either directly via
HBOR's immediate crediting or via 19 commercial banks that implement the programme
within the crediting programme.
Chapter 4
4. Present state in the capital market of Republic of Serbia_through prism of
development of entrepreneurship
4.1.Venture Capital in Serbia as a source of funding the entrepreneurial activities________
Venture capital in Serbia, as a source of funding the initial entrepreneurial activity is very
poor. The funds of a risky capital are seen as private investment funds in law regulations and
their foundation, organisation and management is defined by the Law on the investment
funds. 23
It also states that a private investment fund is a legal person formed as Ltd., in which
the minimum individual investment by a member cannot be less than 5.000.000 dinar. There
are several private investment funds in Serbia, including SEAF, Poteza Capital, Copernicus
Partners, MidEuropa Partners, FPP Balkans i Soros Fund Management.24
In my research, I
wanted to find out to what extent VC funds were present in Serbia as an alternative way of
financing business, that is, the actual usage of this source of finance in the past.
SEAF South Balkan Fund B.V. as the most present venture capital fund in Serbia is a
private investment fund within a global investment company active in 30 countries all around
the globe with the capital possession of more than 400 million dollars. The investors of the
SEAF are well-known international financial and developmental institutions such as EBRD,
IFC, USAID, FMO and SECO. The SEAF has so far invested in more than 270 companies all
around Europe, Asia and South America. Since its appearance, the South Balkan Fund B.V.
has made investments in 5 companies in Serbia, investing over 3,5 million euro, placing
financing in the sum between 300.000-1.600.000 euro. Furthermore, Mid Europa Partners, as
one of the leading companies managing the venture capital funds in central and eastern
Europe invested in buying the leading cable operator in Serbia in 2007. Although it doesn't
23
Zakon o investicijskim fondovima, „Službeni glasnik RS“ br.46/2006.god
24
' Privatni investicioni fondovi ', Nikola Stefanović, Institut ekonomskih nauka, Beograd 2009.god , str. 3

have the headquarters in Serbia and the countries of the region, it successfully analyses the
situation in the market from the offices in London, Budapest and Warsaw, managing the VC
funds of the sum over 2,2 billion euro.25
The company makes investments within the range of
25-100 million euro in the enterprises amounting to 100 million – 1,5 billion euro with high
entry barriers.26
Apart from the above-mentioned, there is a significant number of regional
VC funds interested in financing but are not present in the country itself, which is why they
are not capable of recognising a unique chance to invest in a perspective company.The story
about the equity capital in Serbia should be concluded with the information on forming the
SBAN – the Serbian Business Angels Network in the beginning of 2010, whereby
entrepreneurs were enabled to present their business ideas to potential investors via an official
web portal of the network, which serves as a 'matchmaking' platform. The Business Angel
Network is a part of the European business angel network, encompassing both civillians and
legal persons in Serbia who are willing to make investment in a creative and unique business
idea.
Though praiseworthy, not a single business idea was financed via this network till my
research. Thus we can conclude that the private equity market in Serbia is very small both in
transactions and investments.
4.2.The influence of the monetary policy of Serbia on the trend of interest rates in the
banking sector
The Serbian financial system, seen as a complete whole, consists of 33 commercial banks,
17 leasing companies, 27 ensurance companies and 9 pension funds. Thereby, the dominant
role in the financial system is that of the banking sector as shown in the following table:
Commercial banks 33 2533,33 91,82% 33 2539,93 92,21%
Leasing companies 17 98,8 3,58% 17 79,5 2,89%
Ensurance companies 26 117,05 4,24% 27 124 4,50%
Pension funds 9 9,86 0,36% 9 11,03 0,40%
Total: 85 2759,04 100,00% 86 2754,46 100,00%
Table 5. - The structure of Serbian financial sector in the period 2010-201127
25
http://invest-iq.net/2007/06/mid-europa-partners-acquires-serbian-cable-tv-company-sbb/ (21.12.2011.god)
26
http://invest-iq.net/2007/06/mid-europa-partners-acquires-serbian-cable-tv-company-sbb/ (21.12.2011.god)
27
(Source: www.nbs.rs, 28.12.2011)
4Q 2010 3Q 2011
No,
Net
balance Share No.
Net
balance Share

Table 5. shows the dominant participation of the banking system in a total sum of 92,21%.
The entire financial system is supervised by the National Bank of Serbia (NBS) in accordance
with the law regulative.
The monetary policy in Serbia is also performed by the measures of the NBS by making a
price stability a priority as the basic goal of the monetary policy and emphasising the stability
of price growth. Considering the activities in the capital market in Serbia during the last 10
years (high inflation rate, distrust in the domestic currency), one can conclude that the
management of the monetary policy within the framework of the world's economic crisis
represents a significant challenge in the sense of maintaining a stable financial system of the
country. In that sense, the NBS affects the creation of an interest rate which is in the end
directed towards economy, that is, the final users. The most important instrument in that sense
is the reference interest rate, used by the NBS, either by increasing or decreasing it, affects the
liquidity of the Serbian banking system. It is a rate used by the NBS for REPO transactions in
an open market with commercial banks, based on which it indirectly controls the sum of the
primary money in circulation.This instrument of great importance to the monetary policy
functions to decrease the increase in inflation the Serbian economy is facing.28
The reference
interest rate activity can be shown with the following graph:
Graph 3. – Key interest rate of NBS in time period between 2006-201129
The graph shows the activity of an annual average reference rate of the NBS. One can
notice the restrictive monetary policy in the period 2007-2009, represented by the increase in
the reference interest rate since the second quarter 2007 from 9,5 base points to the fourth
quarter 2008 to 17,75 points.
28
Inflacija u Srbiji je po godinama iznosila : 2007 – 6%, 2008 – 12,5% , 2009 – 8,2 % , 2010 -11,5% , SEE &
Egypt Economic Review, December 2010 , Piraeus Bank, page 31
29
Source: http://www.nbs.rs/internet/cirilica/80/index.html (28.12.2011)

Faced with a great economic crisis, the NBS was forced to reform their monetary policy by
decreasing the reference interest rate from the third quarter 2008 from 17,75 base points to
8,00 base points in the second quarter 2010. Afterwards, a growing trend of the reference
interest rate emerged up to the research period (May 2011), in which the rate increased 10
times up to the final 12,50 base points. It is important to mention that by increasing the
reference interest rate the financing, performed in dinar for the final users and vice versa, is
immediately affected. This means that by increasing the reference interest rate, the limitation
of accessing finances and the increase in costs of funding for economic subjects in Serbia is
directly affected. In other words, every single change of the reference interest rate should
affect interest rates in the inter-banking market, which are seen as a resources of opportunistic
cost of crediting economy and population, whose changes will have an impact on the
movement of active and passive interest rates of banks.30
The performed corrections at the level of an interest rate are based on the evaluation of the
current economic situation and the projection of inflation movement in the future (inflation
targeting strategy). Revising the efficiancy of the reference interest rate through analysing its
influence on the interest rates of banks is reasonable in the Serbian case only in the inter-
banking monetary market, since this interest rate charges to financial resources in domestic
currency. Commercial banks in Serbia do not show credits with a currency clause separately,
but include them in dinar credits, whereby the majority of these credits is approved with a
currency clause. Due to this, commercial banks decide on the level of active and passive
interest rates by taking into account the movement of interest rates in international markets
(Euribor, Libor).31
In addition, there is a graph relating to the fact that it is not possible to determine the
causality between the level of the reference interest rate and the trend of interest rates of
commercial banks directed towards economy with a comparative analysis of the graphs 4 and
5. As shown in the graph 3, in 2010 an average reference interest rate was approximately
smaller by 3 base points in comparison to 2011, when there was an increase, which did not
affect the level of an interest rate in Serbia in the same way.
The level of the interest rates of commercial banks for Serbian enterprises is shown in the
following table:
30
„Osnovne karakteristike i dosadašnje iskustvo Srbije u sprovođenju strategije ciljanja inflacije“ , mr. Vilaret
S., mr. Pješčić V. , mr.Đukić M. , page 10.
31
„Osnovne karakteristike i dosadašnje iskustvo Srbije u sprovođenju strategije ciljanja inflacije“ , mr. Vilaret
S., mr. Pješčić V. , mr.Đukić M. , page 10.

Graph 4. - The trend of interest rates according to the loan purpose32
The above graph shows insignificant shifts in the movements of interest rates to the
approved credits for capital investments and loans relating to a foreign currency. The interest
rates for the loans approved for financing the current liquidity also proved to be varying.
Namely, in the fourth quarter 2010, the interest rate was 12,44 base points only to be
increased by 0,30 base points in comparison to the previous quarter. Later on, it increased to
12,81 base points (1Q 2011), then decreased to 12,21 points (2Q 2011) and finally to 11, 39
(3Q 2011). The movement of interest rates in the population is shown in the graph presented
next:
Graph 5. - Trend of interest rates for civillians33
32
Source: www.nbs.rs (29.12.2011)
33
Source: www.nbs.rs (28.12.2011)

The graph 5 shows average interest rates of the credits given to civillians, craftsman
depending on the financing duration. Insignificant fluctuations are noticeable when it comes
to the movement of interest rates for long-term financing, whereas the interest rates for short-
term financing decreased by 3 points in the period between the fourth quarter 2010 and the
third quarter 2011 (from 25,01 to 22 base points).
The interest rate level in every country depends on the reference interest rate of the
European Central Bank and interbanking interest rate euribor. It can be determined also by the
risk degree for every country as well as the inflationary tendencies in a certain country. Most
often, these are all the factors when it comes to macroeconomic elements forming the capital
price in the banking sector of a country.
The growth of euribor has a negative effect on the economic growth and spending since it
raises financing costs due to an expensive price of the supply of the capital for commercial
banks in the international monetary market, thus contributing to the limitation of accessing
finances both for the existing SMEs and new entrepreneurs. However, it often occurs that,
even though the reference interest rate of the European central banks and euribor are
decreased, the interest rates of commercial banks are raised. This is precisely due to the
estimated risk of a certain country.
When analysing and comparing the level of interest rates in Serbia to the capital price in
the offer of commercial banks as the dominating sources of finances in the region (Croatia,
Bosnia and Herzegovina), we can state that it is a litte bit higher, which has a negative
influence on accessing the sources of funding for the final users and entrepreneurs in the
country.
4.2.1. The offers of commercial banks in Serbia for the newly-formed enterprises
(startups)_
Although there are 33 commercial banks currently operating in Serbia, only a few of them
approve financing of newly-formed enterprises, oftentimes under strict conditions. The
reason for this is a greater estimated risk. Most often it is the case with project financing and
flat building, where a business bank becomes one of the partners in the business. However, it
is generally very difficult for entrepreneurs whose business ideas are not in this economic
branch to obtain adequate financing of the initial entrepreneurial activity.
A credit line that exists in the OTP bank (Opportunity bank a.d. Novi Sad) is perhaps the
only one of this kind in Serbia, that is, one that is exclusively intended for startup owners. The
interesting thing about this credit line is the fact that potential users are not obliged to provide
a business plan when applying – the banks decision on financing is made on the basis of its
credit advisor's evaluation, who estimates the feasibility of a business idea with the applicant.
The credit being obtained, the lender is expected to implement the business idea and to
provide valid documents regarding registration and financial reports. The interest rate varies
between 20-25% with the grace period of 1-6 months and a 36-month repayment period. The
loan amounts is between 500-10.000 euro and as a collateral is required one of the standard
instruments in banking:

- Mortgage for immovable property
- Mortgage for movable property
- a legal entity guaranty
- a civillian's guarantee (employed in a state institution or a big private company).
Another interesting thing is that this bank is the only one to approve of financing for
startups completely from its own sources, whereas other banks approve such financing
through cooperation with regional institutions or the institutions of the local government. An
example includes the commercial bank Banca Intesa a.d. Belgrade, which signed a contract
with the Guarantee Fund AP of Vojvodina, where the financial resources are given to female
entrepreneurs who are in business less than 2 years. The Fund ensured 200 million dinar of
guaranty potential for issuing guarantees to a bank in 2011 and the same amount in the
previous year. In 2009, 30 guarantees in total were given to female entrepreneurs and the
guarantee potential was formed in the sum of 54.489.264 dinar,34
that is, 24 guarantees in the
sum of 31.546.974 dinar35
in 2010. In accordance with the signed contract, Banca Intesa
ensured 2 credit lines directed towards this goal group:
1. A credit line for financing the purchase of equipment to female entrepreneurs and
female founders of small companies being in the business less than three years with
following characteristics36
:
Credit sum: up to 2.000.000 dinar indexed in euro by the medium rate of NBS on the day of
credit realisation.
Repayment period: up to 6 years in monthly annuities
Grace period: up to 12 months
Effective interest rate: 8,44%
Safety measures:
- personal bonds
-contract authorisation for debit of a current account issued in accordance with the Law on
Payment Transactions or creditworthy a quality co-debtor, legal entity or
- Lien of the First order in a facility construction in favour of the Fund by twice a greater
value than the approved guaranty value, application participants or a third party
- Lien of the First order on an agricultural land in favor of the Fund by a one and a half
greater value than the approved guarantee value, application participants or a third party.
2. A credit line for financing a startup programme of women who don't work, which is
a credit line for financing a startup programme is approved under the following conditions37
:
Credit sum: up to 1.000.000 dinar indexed in euro by the medium rate NBS on the day of
credit realisation.
34
„Izvještaj o poslovanju Garancijskog fonda AP Vojvodine za 2009.godinu“ , Novi Sad, January 2010, page 6
35
Izvještaj o poslovanju Garancijskog fonda AP Vojvodine za 2010.godinu“ , Novi Sad, January 2011, page 5
36
http://www.bancaintesa.rs/code/navigate.aspx?Id=413 ( 30.12.2011.)
37
http://www.bancaintesa.rs/code/navigate.aspx?Id=413 ( 30.12.2011.)

Repayment period: up to 6 years by monthly annuities
Grace period: up to 12 months
Effective interest rate: 8,27%
Safety measures:
- personal bonds
- contract authorisation for the debit of a current account issued in accordance with the Law
on Payment Transactions and
- Lien on a facility construction in favor of the Fund in a two times greater value than the
approved value of the guaranty, application participants or a third party or
- Lien of the First order on an agricultural land in favor of the Fund in one and a half times
greater value than the approved value of the guaranty, application participants or a third party
or
- Lien on the financing and solidary guarantee (two civillians) for loans of the sum up to
4000.000,00 RSD
It should be noted that in the amount of the estimated value of the financing project, the
participation of permanent working assets may not exceed 15%.
Exceptionally, in cases of export-oriented activites and in the case of financing a startup
programme, the participation of permanent working assets may not exceed 30% of the
estimated value of the project.38
4.3. Public support in function of affirmation of entrepreneurship and potential
entrepreneurs in Serbia
The mechanism of state support in Serbia for SME sector is carried out through the
competent Ministry of the Economics and regional development, Republic agency for small
and medium enterprises and the Development Fund. The measures of the competent Ministry
are manifested through the implementation of the project defined as „The package of
measures for mitigation of negative effects of the world economic crisis in Serbia“.
Within the same and the following example from the last year, the Ministry has subsidized
interest rates on granted loans according with previously specified purposes and total amounts
are presented in the folowing table:
38
„Work program of Guarantee Fund of AP Vojvodina for 2011th“, The Guarantee Fund, Novi Sad, January
2011. Page 4

2009. 2010.
Type of loan
Number of
realised demands
Realised loans
(EUR)
Number of
realised demands
Realised loans
(EUR)
Total liquidity 11.673 936.075.528 17,492 1.176.774.662
Total investment
loans (currency
clause)
12 2.378.443 1.835 228.803.773
Total consumer
loans
45.797 169.366.058 20.179 87.135.231
Total dinar cash
loan
0 0 167.874 256.162.376
Total housing loan 373 21,482,877 2.299 122,524,453
Total 1.129.302.906 1,871,400,495
Table 6.- Results of the credit support program in period of 2009-2010.39
In the above presented table, total amounts are demonstrated quantitatively, subsidised
within the package of measures in every year by provided categories. The growth of
subsidised investment loans in the year 2010 is notable, in comparison with the previous year.
For this package of measures the Government of Serbia has allocated 10,35 billion dinar in a
2-year period, although in terms of bragging that is a worthy initiative, it should be noted that
it included enterprises which have their place in business for a certain period of time (more
than 3 years), so that the owners of startup companies were not able to use this kind of
government support. On the other hand, through the operation of the Development Fund, a
mechanism of financial support for the owners of startup companies had been established,
also in collaboration with the Ministry of the Economics and regional development and with
the National agency for regional development, the Fund participates in the implementation of
startup crediting. Within this activity, a decentralised approach is noticeable in the preparative
stage and submission of loan documents, which means that the nev venture owners can apply
for a loan in the nearest branch-office in their region based on the Public Call of Ministry.
A Public Call for application for startup financing is being announced for four years in a
row by the Ministry of the Economics and regional development with the objective of
financial support to this segment.
39
Source: http://www.merr.gov.rs/sr/c/programi-i-projekti/krediti-ublazavanje-efekata-svetske-ekonomske-
krize/106 (30.12.2011)

Entrepreneurs starting up submit their applications to the National Agency for regional
development or to the Development Fund. For non-mortgage credit for beginners, where the
priority is given to young people under the age 25, the lowest amount is 500 thousand dinar,
and the highest is 1,5 million with an annual interest of 2,5%. The repayment period is three
to five years, with a grace period of a year and an interest bound to euro. A good thing about
this kind of funding is that it does not necessarily require a guarantee in a form of mortgage,
but you may also receive a loan through a pledge of equipment (at the same time the value of
equipment must be higher than 250.000 RSD), and, furthermore, there is a guarantee in a
form of a bill of two capable guarantees, or an assurance of a legal entity. The loans for legal
entities have the same conditions, with the fact that the maximum amount a legal entity may
receive is 2,5 million dinars. When it comes to these loans, the limitation is applied to their
purpose, they cannot be used for a primary agricultural production, infrastructure investment,
trade, the purchase of travel vehicles, games of chance and other types of gambling.
Entrepreneurs and legal entities who apply must be registered in the APR, and precedence
over legal entities have those who have passed training in competent institutions (Agency for
MSPP, National Employment Service etc.) and have not been owners of a company in the
past.Lending is done in accordance with priorities and criteria defined by the Program of the
Development Fund of Republic Serbia for the following year, that defines framework
placements by categories. In the table no.7 presented next, allocated amounts for startup
companies as a separate category over the years are shown:
Year Number of approved loans Amounts (RSD)
2007. 1.522 2.000.200.000,00
2008. 2.279 2.800.750.000,00
2009. 2.824 4.102.300.000,00
2010. 1.367 2.200.000.000,00
Total
7.992 11.100.000.000,00
Table 7. - Statistics of approved loans for beginner entrepreneurs40
In table no.7, amounts of allocated support to beginner entrepreneurs starting from year
2007 are shown, and it is important to note that a part of funds is provided directly from the
State budget of Serbia, and a part from the collection rate of the Fund from previous years.
During 2011, a Call has been issued to entrepreneurs for application towards resources of the
Fund for this purpose, and the procedure for the approval of a request is as follows:
40
Source: www.fondzarazvoj.gov.rs (30.12.2011)

1. An entrepreneur with a finance request addresses authorised representatives of
National Agency for development, or the Development Agency or the entrepreneur
addresses directly to the Fund.
2. After the submission of documents and its processing, the Application is sent to the
Board of Directors of the Fund which decides on funding.
In addition, the Development Fund issues guarantees on long-term loans approved by one
of the commercial banks in the teritory of Serbia. The fee for issuing the guarantee is 2%
annually from the amount of overall guarantee which may ensure the financing fully. The
issuing guarantee on long-term loans can be segmented to guarantees issued to entrepreneurs,
with reference to guarantees issued to legal entity. The differences are primarily visible in
minimum and maximum amounts of financing for which a guarantee can be issued, so the
requested amount of a guarantee for an entrepreneur cannot be less than 500.000 RSD, and
greater than 5.000.000 RSD, while the minimum amount of a guarantee for a legal entity is
2.000.000 RSD, and the maximum 500.000.000 RSD. On the National Employment Service
website41
, there is a Public Call to unemployed parties for an allocation of subvention for self-
employment, in order to carry out newly registered businesses. Registered unemployed
people can apply for a 160.000 RSD grant providing that they have passed the self-
employment training and that they have a business plan. This programme does not include
those who want to form an enterprise for carrying out activities of individual agricultural
household, associations, trade, financial intermediation, taxi transportation, gambling etc. As
collateral, usually is required: 2 bonds for a user of the Funds with a guarantee and account
authorisation, lien on personal immovable property (except for vehicles) three times greater
than the subsidy, mortgage on real estate twice greater than the subsidy or a guarantee by the
bank twice greater than the amount of the subsidy.
Chapter 5
5. Financial products and sources of funding on the capital market in Bosnia and
Herzegovina
5.1. Venture capital as a source of funding for startups in Bosnia and Herzegovina________
Venture capital as a source of financing in Bosnia and Herzegovina is practically non-
existent, institutional investors in the form of venture capital in the formal sense does not
represent a realistic option for financing the operations of the start-up companies. The
existence of the informal venture capital, referring to business angels can be seen through the
prism of the Bosnian network of business angels "BosAngels Network", which was
established in August of 2010. Network was established to create the possibility of funding
for small and medium enterprises that have unique and creative ideas, high potential for
41
Source: http://www.nsz.gov.rs/page/zanezaposlene/sr/snezaposleni/samozaposljavanje.html (30.12.2011.)

growth and clearly defined marketing niche. Venture capital as such, is interested in investing
in those companies which are expected exceptionally high growth rate, expected rate of return
on investment ranges from 30% to 40% annually. The advantage of funding through VC
funds is that the company has no obligation to return borrowed funds, and no interest charges
on borrowed money. In return, the owner of the company or entrepreneur loses a part of the
ownership structure of the company or the degree of control over the management processes
as a business angel takes part in decision-making roles. Business angels, although only in its
infancy in our market, represent a significant source of funding in the most developed world
economies. In the U.S., for example, in the past decade expansion of their numbers occurred
and the estimates are that there are about 258,200 business angels.42
In 2007, business angels
in the U.S. invested 26 billion U.S. dollars in 57.120 small enterprises.43
It is important to
emphasize a willingness by business angels to invest relatively small amounts of money into
business ideas, in the Bosnian case minimum is the amount of 20,000 €.44
Their specificity
and differences in relation to investment funds is reflected by the fact that they are willing to
invest in companies at an earlier stage of their life cycle, while institutional investors
normally fund enterprises in the phase when the company needs substantial funding for
further development. The initial issue of shares (IPO), as an instrument to raise funds through
equity share in the capital market in B&H is still not flowing as a realistic option for
businesses in finding proper sources of financing. Until the period of my research, only one
company in B&H made the initial public offering on the primary capital market to obtain
fresh funds, and it is a company Fratello Trade A.D. from the Republic of Srpska entity.In the
Federation of Bosnia and Herzegovina not even a single company used this option to obtain
capital up to this date, and the reason for this state we can seek in the size of the most
domestic companies. The ability to attract foreign investors is lower if the company does not
consider amounts greater than $ 100 million, which is for most domestic companies
unrealistic because they are too small.
This means that for most domestic companies, the target market when they were starting up
either locally or regionally, was quite modest. Part of the reason why companies do not go for
an IPO also lies in the mentality of the owners of local companies who are reluctant to release
its ownership structure to external investors, despite of the advantages this type of funding
provides in the development of the company. This motive is particularly expressed in
companies that are family owned and where the step of opening up to investors is the hardest
thing to do.Part of the problem also lies in the ignorance and lack of willingness of
entrepreneurs to inform about the opportunities and advantages offered by this mode of
financing in the further development of their companies. In this sense government authorities
or competent institutions need to take certain steps in terms of launching an information
campaign that would somehow motivate entrepreneurs and inform them about the process of
issuance of company shares and about the opportunities and challenges that arise in the
process of opening up to outside investors.
42
Center for Venture Research, The Angel Investor Market in 2007 : Mixed Signs of Growth (Durham: University of New
Hampshire, 2007), page 30
43
Center for Venture Research, The Angel Investor Market in 2007 , page 30
44
http://www.bizon.ba/ekonomija/8695-u-bih-osnovana-mrea--poslovnih-anela.html (15.6.2011)

5.2. Credit policy of commercial banks in Bosnia and Herzegovina___________________
Obtaining a loan from a bank is usually a tough experience for startups, both because they
neither have adequate financial statements for the previous years, which is logical because
they are just starting up, nor they usually have enough assets to guarantee for the funding
required. Commercial banks in B&H, as any other banks in countries of the Western Balkans
region have a strict conditions and legal restrictions when it comes to providing a financial
products to their clients. Internal audit of the placements provided in the past period as well as
the regular control of the Banking Agencies of the entities restrains the bankers capacitiy to
look beyond the debt to equity ratio, risk minimisation or collateralization of the potential
loans. Heavily inclined towards risk averse business policies of their companies, bankers in
B&H always seek for proper collateralization of the funding, and the firms ability to regulary
repay the debt represents the main factor which guides their lending. In Bosnia and
Herzegovina there are thirty different commercial banks, two thirds of them stationed in the
Federation of Bosnia and Herzegowina45
, and ten commercial bank are formed and working
with licence in the region of Republic of Srpska 46
. However, most of the commercial banks
have organisational parts and units formed in the other entity, as well as the Brčko District,
creating similar offer for financing in the entire teritorry of Bosnia and Herzegovina for new
venture owners. During my research, I contacted 10 commercial banks and approached the
same number of bankers with specific set of questions regarding the startup funding.
The answer was always the same, there are no specialized lines of credit for startups and the
terms for receiving a bank loan are pretty much tighter and more strict then for ventures who
are in business for several years. Interest rates for startups are also higher because of the
abscence of key preconditions required to meet the lending standards. Key features to getting
the bank loan for a startup is a firmly guarantee, strong collateral and a business plan with
clearly defined market niche. This means that the new venture owner in the process of
applying for a bank loan should be prepared for a demanding set of standards , starting with a
market value of collateral in parity 1:1,5 approximately, very respectable venture in the local
area as a guarantor willing to pledge that a loan will be paid back, and a clearly defined
market potential written in business plan combined with creative presentation to the banker.
Bankers insist on these key elements when it comes to long-term loans, audited financial
statements for at least three years in a row as a valid criteria for obtaining a bank loan for any
company is not a big deal, except for startup venture because of the early stage of its life
cycle. Although the financial statement of the ventures applying for the bank loan are viewed
as, according to one interwieved banker, „a life blood of that venture“, in special cases
bankers tend to provide funding for startups even without the audited financial statements.
However, other key features and lending standards must be respected. Even though most of
the loan applications got rejected because of the low-quality collateral, securing the collateral
is not the only thing what startup owners need to do. This means that the mission of any
commercial bank isn´t to take an entrepreneurs piece of property through potential trial
45
„Izvještaj o bankarskom sistemu Federacije Bosne i Hercegovine do 31.12.2009.god“ , Agencija za
bankarstvo FBIH, mart 2010.god.
46
„Izvještaj o stanju u bankarskom sistemu Republike Srpske za period 01.01.2009 - 31.12.2009.god“, Agencija
za bankarstvo Republike Srpske, april 2010.god.

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