Breaking the debt barrier: New research explores external financing in Czech entrepreneurship
Mastercard Strive ―
This post is written by Eva Lacinová, the Social Impact Manager at the Center for Inclusive Growth.
This post is written by Eva Lacinová, the Social Impact Manager at the Center for Inclusive Growth.
In the dynamic landscape of Czech entrepreneurship, the relationship with debt and external financing is a complex and often contentious one. While many entrepreneurs recognize the potential of loans as a tool for business growth, a significant portion remain hesitant, opting instead for a debt-free approach. This reality, one of many for Czech entrepreneurs, is captured in the latest edition of the study Striving to Thrive, known as the Barometer, which offers a closer look at how Czech MSEs access, use, and think about financing.
For many Czech entrepreneurs, debt is not a preferred option. In fact, this report found that 40% actively avoid loans and opt to remain debt-free. While this approach minimizes the risk of bad debt, it also limits opportunities for business growth, highlighting how external financing is a complex issue for many Czech small businesses. Despite the complexity, loans can still offer clear advantages. They play a vital role in business success, and more than half (55%) of loan recipients report slight to significant increases in revenue after securing funding.
In recent years, challenges related to external financing have become more prominent. Entrepreneurs report that high interest rates (27%), inadequate loan sizes (24%), and strict collateral requirements (22%) have made private financing unattainable for many of them. These barriers have resulted in only a quarter of small business owners actively seeking external finance.
“I didn’t meet the income requirements.” — Male entrepreneur, 45–54 years. “Reluctance on behalf of the bank to extend additional credit on top of existing loans — mortgage and one existing consumer loan.” — Female business owner, 45–54 years
Moreover, securing a loan doesn’t always feel like a win. A significant 90% of entrepreneurs who take out loans see them as a burden, and some even regret the decision. Older entrepreneurs and men are more likely to feel this burden compared to women and younger entrepreneurs. Looking ahead, about 60% of Czech MSEs have no plans to seek external financing in the coming year. This reluctance to borrow could restrict the overall growth and sustainability of the sector, leaving businesses vulnerable to future challenges.
A key issue contributing to this hesitation towards external financing is a lack of knowledge about available financial options. Twenty percent of entrepreneurs rate their knowledge of bank loans as poor, and 40% are unaware of government financial support that could ease their financial struggles. This lack of awareness hinders their ability to make informed decisions and explore suitable financing options.
One notable aspect of Czech entrepreneurship that the study explores is the persistent gender gap. Women entrepreneurs face unique challenges, especially in balancing small business ownership with family responsibilities, such as caring for young children. Czech entrepreneurs with children younger than six are 1.5 times more likely to worry about finances than those with older kids. Nearly a quarter of entrepreneurs without children report no financial worries. Unsurprisingly, this burden falls disproportionately on women, who are also 1.5 times more likely than men to worry about finances daily.
This study is critical for establishing a deeper understanding of the financing challenges and realities of entrepreneurs by the Mastercard Strive in Czechia, which aims to bolster the financial resilience and encourage the growth of Czech MSEs, by facilitating access to finance and a range of key support services including peer mentorship and coaching, targeting women-led businesses and displaced Ukrainian entrepreneurs. We also hope these insights will enable Czech corporations, government, and civil society to better support entrepreneurs to thrive.
The study identifies five recommendations for collective action to better support Czech entrepreneurs:
- There needs to be more focus on building awareness of external financing options, and to highlight the impact they can have on business heath.
- At the same time, entry barriers to both private financing and government support should be simplified, reducing complexity and improving transparency.
- Meanwhile, we must be more targeted in our design of financial products for enterprises, especially those owned by women.
- Build entrepreneurial communities that can support each other.
- At the same time, we must recognize prevailing cultural sentiments and create more non-debt options.
