FINANCIAL CHALLENGES OF SMEs DURING COVID-19 CRISIS: THE CASE OF SPLIT-DALMATIA COUNTY

The purpose of the paper is to find out how COVID-19 has affected the sector of SMEs, especially in terms of its access to finance. In doing so we hypothesize that problems arising from both supply side and demand side of the business, have additionally restrained SMEs’ access to finance, thus putting their short-to-medium term position to a threat. Research methodology includes descriptive statistical analysis of the results of a company survey of Croatian enterprises with respect to their current access to finance and expectations for the future. The survey was carried out on a sample of 40 small and medium sized companies in Split-Dalmatia County. The findings show that companies do not perceive many of the business risks as particularly threatening to their businesses. Still, this survey reveals a presence of a series of risks closely related to the current situation caused by COVID-19. These include increasing production costs resulting from rising costs of labor, capital, raw materials and other inputs (e.g. transport and logistics services), followed by increasing tax burden and stagnating productivity. Together with increasing costs, a fall in demand on both domestic and foreign markets, as well as a resulting decrease in sales, announce further problems that call for a strong policy response in the future. The main contribution of the paper is the finding that besides the problem of access to finance, the COVID-19 crisis has revealed other serious obstacles for SMEs which threaten to endanger the market position and competiveness of small business in the long run. By far the most serious problems for Croatian SMEs are that of a structural nature which include increasing costs and decreasing productivity. This research has additionally accentuated some serious obstacles from external environment which threaten to restraint SMEs’ capacity to restructure and keep their competitive edge.