Small businesses in Croatia are recognized as a locomotive for economic restructuring and increase of rate of employment. Bank credits have become more accessible in Croatia for the SME sector following privatization by foreign banks, which now participate with more than 90 percent in total bank assets of the country. Although foreign banks had a positive impact on the domestic banking market they tended to prefer household and large scale enterprise lending. Besides creating an equity gap, especially for the earlier stage non-technology based SMEs, asymmetric information leads to imperfect lending (credit rationing) even for prospective SMEs with fast revenue growth. SMEs' role in banks lending decreases with bank size: small businesses have dominant place in small banks credit portfolio (cca 50% of credits). Furthermore, small business experience obstacles in assurance of appropriate bank finance. However, there is a trend among larger banks of paying greater attention to small businesses, as well as positive development in the variety of sources used for investment finance.

JEL Codes

G32, L25, P31, M13


Finance , Privatization