106 PERSPECTIVES ON BUSINESS AND ECONOMICS | VOL 44 | 2026 By lowering collateral requirements, extending maturities, and reducing borrowing costs, these instruments directly target the exclusion mechanisms, discussed previously. In doing so, they expand bankability to small firms that would be otherwise excluded by typical bank underwriting. Demand for these loans quickly proved high: HAMAG- BICRO approved 613 ESIF loans worth HRK 177M (~€23M) in 2018 alone, bringing the total to 1244 loans just two years after the program began (Alpeza et al., 2019). Including ESIF-backed guarantees, the value totaled HRK 642M (~€85M), indicating that small firms were eager for alternatives to traditional bank credit and demonstrating how quickly EU-backed finance can scale when tailored to their needs. Nevertheless, high-growth innovative firms had not been taking up these programs as much as they could, suggesting that the program’s appeal may lie more with smaller, risk-averse enterprises than with ambitious startups. This reluctance mirrors the nature of debt instruments. Even with subsidized or softened interest rates, loans are best suited for activities that earn predictable cash flows, such as the purchase of equipment and inventory or business expansion. ESIF-backed microloans can be highly effective for these expenses, as repayment schedules can be aligned effectively with anticipated earnings. Yet startups, especially those innovative in their product offerings or business models, are not well served by fixed debt repayment schedules, given uncertain revenue streams, long development timelines, and higher probability of failure. This mismatch discourages borrowing even on favorable terms and helps explain the limited uptake from high-growth firms. Without more equity instruments, such as venture capital and seed funding, the types of Croatian SMEs that are most likely to drive productivity growth and structural transformation will remain underserved. The COVID pandemic confirmed this dynamic. Many Croatian firms faced liquidity issues, and these instruments were softened to encourage business activity. In 2020, the interest rates on the ESIF small investment loans were temporarily cut to 0.1%–0.5%. Furthermore, available funding was increased and collateral requirements simplified, directly addressing some of the unbankability challenges faced by SMEs. The HAMAG-BICRO Micro and Small Loans for Rural Development Program demonstrates how targeted design can reach borrowers commercial banks often miss. Following an assessment that revealed a financing gap for micro and small entities in agriculture, processing, and forestry, Croatia launched this dedicated instrument for small family farms and rural businesses in 2018, with an initial budget of €17.65M (Fi-Compass, 2020). By January 2022, this instrument had disbursed €50.4M across 1267 microloans (Fi-Compass, 2020), most to family farms investing in equipment and machinery, suggesting the facility effectively reaches the small rural producers who struggle most with collateral and cashflow limitations. HBOR complements these smaller instruments with larger ESIF-backed credit lines aimed at scaling up established SMEs. The ESIF Growth and Expansion Loans receive half of their funding from ESIF resources at a 0% interest rate and the other half from commercial banks at market rates (HBOR, 2026). This blended structure reduces borrowing costs while keeping commercial banks engaged and preserving traditional bank-style screening and documentation requirements. Where HAMAG-BICRO reaches marginal borrowers that banks tend to miss, HBOR reaches firms already close to bankability, further filling access gaps. Referring back to Table 1, the number of firms experiencing financial constraints fell dramatically in 2018, shortly after the introduction of these credit lines and EU development instruments, suggesting that the credit lines could have played a significant role in expanding financing options for SMEs, especially leading up to the pandemic. However, these lower levels of financial strain also coincided with cyclical changes in GDP growth; relatively low and mostly decreasing interest rates on loans to SMEs; and significant, continuous decreases in NPL ratios (aside from a marginal uptick due to the pandemic in 2020) (European Commission, 2023). Lower SME loan interest rates and NPL ratios both improve the lending environment for SMEs, making it difficult to identify any single factor as a primary contributor. Note that the heightened interest rates in 2023–2024 coincided with the adoption of the euro. The ECB raised rates more than 4.5 percentage points from 2022 to 2023. Most likely, these increases had little connection with domestic fluctuations, rather, were funneled in (European Central Bank, 2026). Any impact on financial constraints or NPL ratios is not meaningfully reflected by Table 1. Furthermore, the easing of financial constraints that began in 2018 was disrupted by the pandemic before it could be tested or consolidated under normal conditions. As emergency measures were withdrawn and the economy adjusted to post-COVID conditions, constraint rates rose again to 10%–12%,
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