SMEs’ alternative financing : the case of Latvia

Abstract

This article analyses the ways how companies operating in EU countries attract alternative financial resources. The importance of non-traditional, alternative/innovative financing is gaining recognition in both developed and emerging economies throughout the world. SMEs’ financing in Europe remains primarily bank based, in spite of many policies proposed to develop alternative financing instruments (e.g., adopting directives on venture capital, improving the transparency and visibility of SMEs on capital markets, etc.). The research is therefore to expose recent trends in alternative financing in EU, significantly enhancing the evidence base on this key source of entrepreneurial finance. As a source of ‘smart money’, supporting new and early stage businesses, alternative providers are widely accepted as being a critical part of the competitiveness enhancement. Generally accepted qualitative and quantitative methods of economic research were applied in this paper, including in-depth face-to-face interviews with the board members of the nine banks of Latvia, operating in the other Baltic and Nordic countries as well as 1200 companies’ owners or top managers. Main findings show that alternative financial service providers are competing and often outcompeting the traditional ones at high speed. Conducted empirical analysis shows the most available financing sources except banking products are Friends and Family (FF) and different state (including EU grants) support programmes, Venture Capital (VC) and Business Angels (BA).