Risks of lending to small enterprises in the Republic of Serbia

Abstract

Bearing in mind the major risks of lending to small enterprises and entrepreneurs in Serbia, this paper analyzes this problem and presents the concrete activities that commercial banks should undertake to mitigate these risks. After analyzing the business environment in Serbia and the current lending practice, we have concluded that in the process of approving loan applications, without exception, the following analyses and activities need to be undertaken: verification of the client's status, financial analysis of the entrepreneurial business, analysis of the entrepreneur's business operations, assessment of how regularly the entrepreneur settles his liabilities, analysis of risks entailed by the bank's offer (i.e. the set of products), evaluation of loan collaterals, currency risk of lending to the business, and risks of lending to a start-up entrepreneurial business. Similar studies were conducted in the United States, yet this particular analysis focuses on the needs and practices of the banking sector in Serbia, with the aim of suggesting to commercial banks to implement the above stated activities and analyses persistently and comprehensively, putting them ahead of accelerated lending procedures, acquisitions and sound, short-term business results.