Financing SMEs and Entrepreneurs 2026: Lithuania
Table of contents
After two years of stagnation, Lithuania’s economy showed resilience in 2024, with GDP growth of 2.7%. This economic recovery was broad-based, with value added increasing across many economic activities. As debt-servicing costs declined amid falling interest rates, financial liabilities of businesses increased rapidly; however, due to strong growth in financial assets, net financial assets of Lithuanian NFCs rose.
SMEs account for 99.6% of all enterprises operating in Lithuania, the majority of them (86.8%) being micro-enterprises. Most SMEs are primarily engaged in wholesale or retail trade activities (more than one-fourth of all SMEs). SMEs account for around 68% of total employment, while their share of gross value-added is close to 54%.
Driven by rising demand for loans amid decreasing interest rates, NFC borrowing in Lithuania began gaining momentum in 2024, with banks expecting a further increase in demand for corporate loans. The loan portfolio of firms grew at an annual rate of 19.5% at the end of the second quarter of 2025, driven by lending to real estate and manufacturing companies and accompanied by a recovery in lending to the transport sector. Business indebtedness increased slightly from the low reached in 2023, but the MFI (Monetary Financial Institutions) credit-to-GDP ratio remained one of the lowest in the euro area. The number of companies with loans from credit institutions remained largely unchanged, as companies continue to face structural difficulties when seeking to borrow from credit institutions. As a result, internal resources remain their main source of funding.
The Bank Lending Survey of Lietuvos bankas indicates that although the share of rejected or partially granted corporate loan applications increased slightly in the first half of 2025, the same period recorded the first overall easing of lending standards in more than three years, albeit modest. Overall, banks currently view the financial situation of companies as stable or improving.
In 2024, companies increased their short-term financing mainly through accounts payable and trade credits, while their long-term financing needs were met by increased MFI lending and loans from other NFCs. Companies are increasingly turning to alternative sources of financing, the range and demand for which have expanded in recent years, with bond issuance and crowdfunding platforms playing a more prominent role.
The government supports SMEs by ensuring favourable conditions for obtaining the financing needed to start and develop their businesses. When a company does not have sufficient collateral, it can apply to the national development bank ILTE (formerly INVEGA), which provides various options, including loan guarantees, factoring, leasing, and export credit guarantees. ILTE also offers preferential loans through alternative financing instruments, including crowdfunding, as well as loans at preferential rates via venture capital–related funding schemes. In addition, municipalities provide various support schemes for SMEs; for example, when starting a business, entrepreneurs can receive support to cover set-up costs, part of interest payments, and other expenses. To mitigate the impact of the crisis caused by Russia’s large-scale aggression against Ukraine, direct loans to business entities affected by the war have been introduced.
Source: See Table 2.
After two years of stagnation, Lithuania’s economy showed resilience in 2024, with GDP growth of 2.7%. This economic recovery was broad-based, with value added increasing across many economic activities. However, manufacturing as well as trade and transport activities were the main contributors to the increase in economic activity in the first half of 2024. With inflation subdued, a favourable labour market situation and positive household sentiment fuelled the recovery in household consumption.
Despite escalating trade and other geopolitical tensions in the first half of 2025, the Lithuanian economy remained resilient, and the risk of a more significant economic downturn is mitigated by the fact that Lithuania’s direct dependence on trade with the USA is relatively lower than that of other EU countries. Economic development was positive in the first half of 2025, supported by strong domestic demand, rising purchasing power, and investment, and GDP is expected to grow by 2.9% in 2025. Investment will benefit from the waning effects of previously tightened monetary policy and from EU support fund inflows.
With inflation in the euro area gradually declining towards the 2% monetary policy target, interest rate cuts continued in the first half of 2025. Inflation in the euro area stood at 2.2% in March 2025, broadly unchanged from six months earlier, while in Lithuania average annual inflation is projected to reach 3.3% in 2025 before declining in 2026.
In Lithuania, most NFC loans are granted at variable interest rates. The majority of borrowers experienced decreasing key interest rates, leading to lower debt-servicing costs. As debt-servicing costs declined, financial liabilities of businesses increased rapidly; however, due to strong growth in financial assets, net financial assets of Lithuanian NFCs rose by EUR 20 billion (30% annual growth) in the third quarter of 2024. In the first quarter of 2025, corporate liabilities grew by 8.5%, mainly driven by increased financing through long-term and short-term loans from banks and other non-financial corporations, as well as a rise in the portfolio of short-term trade credit. With liabilities growing moderately, net financial assets grew faster: net financial assets of non-financial corporations increased by EUR 21 billion (annual growth of 13%), largely due to investments in unlisted shares, short-term loans granted, and trade credits. The MFI corporate loan-to-GDP ratio has slightly increased since mid-2023 but remains one of the lowest in the euro area (15.7%) after almost a decade of decline.
SMEs account for the vast majority of all enterprises operating in Lithuania. According to Statistics Lithuania, 116 533 SMEs operated in Lithuania at the beginning of 2024, accounting for 99.6% of all enterprises in the country. This number grew by around 24% over the past five years, but its share of total enterprises remained broadly unchanged. The majority of SMEs are micro-enterprises (86.8%). Over the last five years, the number of micro-enterprises increased by almost 29%, and their share among all SMEs grew by 3 percentage points.
SMEs remain the most significant contributor to the domestic economy, generating around 54%1 of gross value added and contributing to half (51%) of domestic exports of goods. In 2024, SMEs employed about 68% of all persons employed in Lithuania. SMEs are largely concentrated in the trade sector. Slightly more than a quarter of all SMEs operate in the retail and wholesale sectors, and these sectors account for around 21% of all SME employees. The manufacturing, construction, and transport sectors are also relatively large, as the share of employees’ accounts for 18.7%, 13.2%, and 12.3% of all SME employees, respectively. The share of other economic branches is much smaller.
SMEs play a significant role in investment as well. In 2024, SMEs’ investments amounted to 61% of all tangible investments among enterprises. Even though from 2017 to 2024 SMEs’ tangible investments has increased by 66%, the SMEs role in total investment is decreasing: this share has decreased by nearly 10 percentage points in the same period.
Source: Statistics Lithuania.
Driven by rising demand for loans amid decreasing interest rates, NFC borrowing in Lithuania is gaining momentum, with banks expecting a further increase in demand for corporate loans. The loan portfolio of firms grew at an annual rate of 19.5% at the end of the second quarter of 2025, driven by lending to manufacturing and real estate companies and accompanied by a recovery in lending to the transport sector. The total quarterly loan flow was more than 25% higher than a year earlier, largely due to higher average loan values. The Bank Lending Survey of Lietuvos bankas indicates that, amid falling interest rates, demand for corporate loans continued to grow moderately in the second quarter of 2025 and is expected to increase further, especially in the SME segment.
With the average loan amount increasing, flows of new loans to companies continued to grow (annual change of 5%), but the number of companies with loans from credit institutions remained largely unchanged in 2024. The majority of corporate loans (76% of the portfolio) were issued to companies registered in the counties of Vilnius and Kaunas, and both counties stand out significantly from the others in terms of the ratio of the loan portfolio to the gross value added created in the county (their average is 24%, compared with 14.2% in other counties).
Although business indebtedness increased slightly from the lowest point reached in 2023, the MFI credit-to-GDP ratio remained one of the lowest in the euro area. The volume of bank credit provided to non-financial corporations remains low relative to Lithuania’s economic growth, and companies face difficulties when seeking to borrow from credit institutions, as the banking sector’s risk appetite for lending to companies has declined significantly over the last decade. A survey by the European Investment Bank indicates that in 2024 the share of finance-constrained companies in Lithuania (around 13%) was one of the highest in the EU. This issue was more pronounced for micro and small enterprises, where the share stood at around 19%, while for medium-sized and large firms the situation was significantly better at 11%. The share of firms that rely primarily on internal funds remains one of the lowest in the EU, indicating structural issues in access to external finance. Smaller firms cite rejected loan applications or receiving less financing than initially sought, mainly due to high collateral requirements.
Lithuanian SMEs most frequently choose trade payables, loans from other NFCs, and other non-bank sources to finance their activities. Nevertheless, lending to SMEs plays an important role for banks operating in Lithuania. By the end of 2019, loans granted to SMEs accounted for 42% of the total portfolio of loans to non-financial enterprises. This share increased by 17 percentage points in 2020 and remained elevated in 2023 and 2024 (60% and 58.1%, respectively). This increase was driven not only by lower loan demand from large companies but also by structural changes in the NFC loan portfolio. When the first quarantine began in Lithuania, NFC borrowing weakened: while the SME loan portfolio remained relatively stable, a sharper decline was observed in the loan portfolio of larger enterprises. The decline in the NFC loan portfolio in 2020 was mainly driven by heightened uncertainty, postponed investments, sales of reserves, and state support measures.
With inflation in the euro area declining towards 2% and the ECB lowering its key interest rates, the 6-month EURIBOR fell from a peak of 4.1% in October 2023 to 2.1% in April 2025. Therefore, interest rates on new MFI loans to non-financial corporations have decreased significantly (by around 2 percentage points) during this period and in April 2025 stood at 4.5% for SMEs and 4.6% for large firms.
After the 2008–09 global financial crisis, the interest rate spread between new small and large loans fluctuated between 0.6–0.8 percentage points. However, since 2019 this difference has been contracting, and in 2022 the interest rates on small loans (below EUR 1 million) were just 0.2 percentage points higher than those on large loans (above EUR 1 million), at 3.62% and 3.43%, respectively. This convergence could be partly attributed to the wide range of state support available to SMEs (e.g., government loan guarantees), which can reduce their credit risk. Another contributing factor may be a slight decrease in concentration in lending to the SME segment, together with the increasing involvement of smaller market participants in the credit market over the past few years. Notably, during the 2023 interest rate hiking period, the lending rate spread reversed sign, with SMEs borrowing at slightly lower interest rates than large firms. Due to government guarantees for SME loans, interest rates for some SMEs may be less sensitive to interest rate hikes, leading to asymmetric interest rate pass-through across firm sizes. Moreover, lending to larger firms is more closely linked to market funding conditions, and repricing therefore occurs more frequently.
The Bank Lending Survey of Lietuvos bankas indicates that although the share of rejected or partially granted corporate loan applications increased slightly in the first half of 2025, the same period recorded the first overall easing of lending standards in more than three years, albeit modest. Banks considered the financial health of companies in the accommodation and food services sector to be the weakest, while assessments of construction and transport firms have been improving since the end of 2024, according to the Bank Lending Survey. Overall, banks currently view the financial situation of companies as stable or improving.
SMEs operating in Lithuania mainly tend to use traditional funding sources, i.e. own funds, trade credits, loans, and financial leasing. More than half of the companies do not use loans from financial institutions at all, the main reason being a reluctance to borrow. Companies also indicated that state aid measures and EU funds were significant sources of finance.
Companies are increasingly turning to alternative sources of financing, the range and demand for which have expanded in recent years. In 2024, MFI credit accounted for 17.1% of total corporate liabilities, down from 27% in 2014. Internal resources remain the main source of financing for companies, and with limited access to traditional financial products, alternatives to loans from credit institutions are increasingly being sought. In 2024, companies increased their short-term financing mainly through accounts payable and trade credits, while their long-term financing needs were met by increased MFI lending and loans from other NFCs.
In 2024, Lithuanian NFCs raised nearly EUR 460 million through bond issuance and EUR 280 million through crowdfunding platforms. This amount accounted for nearly 21% of the financing provided by credit institutions to companies. The national development bank UAB ILTE is partially contributing to reducing the shortage of financing for companies, as it allocated around 63% (EUR 289 million) of its business funds to SMEs in 2024. The role of UAB ILTE is expected to increase significantly in 2025–2026 due to the Billion for Business financial instrument, which is expected to provide approximately EUR 1 billion in direct loans to eligible companies, i.e. firms undertaking projects that promote decarbonisation, energy efficiency, low-waste or high value-added production, as well as projects in the defence and security sectors.
Venture capital (VC) investments grew significantly in 2018. Due to economic disruptions caused by the pandemic, the flow of new VC investments dropped significantly in 2020. Nevertheless, despite a poor investment environment, Lithuanian companies managed to attract around EUR 411 million in investments in 2022 and EUR 296 million in 2023, after the peak of EUR 470 in 2021. While investment flows declined in 2024 compared to previous years, this was mostly due to the absence of late-stage investments.
Source: Startup Lithuania Dealroom database.
In 2024, the number of bankruptcy proceedings (1 144) grew by 12.4% compared with 2023 (1,018) but remains significantly lower than pre-pandemic levels. Despite geopolitical and trade tensions, at the beginning of 2025 there was no increase in the number of bankruptcies among companies in sectors more vulnerable to US import tariffs. Historically, almost all bankruptcies (more than 99%) are experienced by SMEs, corresponding to the distribution of firm size.
An analysis of the sensitivity of companies to macroeconomic shocks, carried out by the Bank of Lithuania in the Financial Stability Review 2023, indicates that companies in the accommodation and catering, transport, manufacturing, and trade sectors would be the most vulnerable in a crisis scenario. NFCs operating in these sectors are vulnerable to shocks to turnover or expenditure and are likely to experience the highest job losses in a crisis scenario. Micro and small enterprises, which account for more than 90% of all vulnerable companies, would be the most affected by economic shocks. However, credit to vulnerable companies represents a small share of total credit to non-financial corporations; therefore, even in the event of a significant increase in the number of bankruptcies among such companies, the impact on the financial sector would remain limited. The impact on corporate credit risk in this scenario would still be relatively low due to accumulated reserves, better preparedness of the financial sector, and the buffers put in place after the previous crisis.
Overall, the level of corporate non-performing loans (NPLs) remained at a historically low level of 1.4% at the end of 2024. Historically, SMEs tend to have a higher share of NPLs in bank loan portfolios due to their higher risk profiles. At the end of 2020, the share of NPLs related to SME loans amounted to 4.9%, while the total NPL ratio stood at only 2.2% (3.5% for non-financial enterprises). However, this difference has been decreasing steadily, and at the end of 2022 the share of SME loan NPLs was just 1.9%, with the total NPL ratio dropping to 0.9% (1.5% for non-financial enterprises). At the end of 2024, the highest shares of NPLs were recorded in the agriculture, forestry, and fishing sector as well as in the accommodation and food services sector (8.2% and 3.6%, respectively). As a result, the latter sectors are currently facing more restricted lending from credit institutions.
Source: See Table 3
References
Bank of Lithuania – https://www.lb.lt/en/
AVNT LT https://www.avnt.lt/en/Home/
State Data Agency of Lithuania – https://www.stat.gov.lt
Startup Lithuania Dealroom database – https://www.startuplithuania.com/dealroom-database/
Review of the Survey of Enterprises – https://www.lb.lt/en/publications/review-of-the-survey-of-enterprises-2018-1
Review of the Bank Lending Survey (in Lithuanian) – https://www.lb.lt/lt/apzvalgos-ir-leidiniai/category.40/series.196
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← 1. State Data Agency of Lithuania: Gross value added of small and medium enterprises at current prices (share in the national GVA)