The smaller an enterprise, the bigger the loan problems it faces

The smaller an enterprise, the bigger the loan problems it faces

The model of small and medium-sized enterprises (SMEs) being the backbone of the Greek economy has collapsed, as figures show that almost 60 percent of loans to SMEs are nonperforming. Even worse, 70 percent of the loans taken out by freelance workers are in the “bad” category.

Bank of Greece data put nonperforming exposure to major enterprises at 29 percent of loans totaling 51 billion euros, while the rate for SMEs stands at 59.9 percent of loans that add up to 39.2 billion. The picture is even more disappointing for very small businesses and freelancers, as bad loans amount to 67 percent of the sum of 25 billion. This means that the smaller an enterprise, the bigger the problems it tends to face.

The very small average size of enterprises in Greece is one of the biggest problems in the domestic economy as they are non-competitive businesses that often survive by dint of luck and prevalent evasion: of taxes, of social security contributions for staff employed temporarily, of debts, etc.

Estimates show that just 400 enterprises in Greece can qualify as medium-sized or large by European standards, while the vast majority of companies employing fewer than three people (one in most cases, the entrepreneur himself). This is a structure that is not sustainable in the contemporary economy unless it concerns small firms in technology and innovation.

The consequences of this combination of very small size, poor management and access to easy money are seen particularly in areas such as tourism, where repayment delays reach up to 49 percent, and agriculture – despite major advantages – where delayed payments come to 63 percent.

Bank officials say that tackling the bad loans of SMEs, along with those of households, will decide the outcome of the credit sector’s battle to cut its NPL stock.

Analysts note that the transformation of the economy through the creation of bigger corporate structures for achieving economies of scale is a necessary condition for a transition to a new competitive model.

Such a structure, however, is hampered in Greece by the absence of a culture of cooperation, they add.

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