"It is not a significant amount in terms of the overall economy, but it is a limited resource which we want to use optimally for the Slovak economy."
Dennis Brown, President of the Slovak American Enterprise Fund
Established in the former Czechoslovakia in 1991 and reconfigured in Slovakia in 1993, the SAEF was the first significant investor in the country, injecting to date more than $15 million into the Slovak economy in the form of debt and equity payments, and an additional $3 million through a joint lending program, known as the American Loan Program (ALP) engineered with Slovakia's Poľnobanka.
At a press conference on June 20, SAEF President Dennis Brown announced the release of another $25 million injection "in an attempt to reflect changes in the market." These changes, Brown explained, include "an extreme need for new capital" and recent increases in "already prohibitive interest rates". The SAEF invests its funds on a commercial basis, and sets a minimum of 10 million Sk ($300,000) and a maximum of 80 million Sk ($2.5 million) for each investment project.
The fund excludes casinos, nightclubs, non-private, defense-related and start-up companies, as well as businesses that have anything to do with tobacco or alcohol. The ALP, on the other hand, specifically targets smaller companies. Loans may be anywhere from 600,000 to 10 million Sk ($17,000 to 300,000).
To be considered for funding, a company must be privately owned, employ less than 600 workers, execute its business plan on Slovak territory and have two years of operating experience in a given industry. Loan funds can be used to purchase real estate and technology, to modernize equipment and to finance working capital needs. Businesses which concern gambling, defense or abortion are not admitted to the program.
According to the Slovak Statistical Bureau (ŠÚSR), cumulative foreign direct investment (FDI) into Slovakia from January 1990 to the end of 1996 totaled $887 million. Aware that current and projected SAEF investments combined represent barely 5 percent of FDI in the country to date, Brown argues that the SAEF program is still an important resource for small businessmen. "It is not a significant amount in terms of the overall economy, but it is a limited resource which we want to use optimally for the Slovak economy," Brown said.
"Optimizing" financial resources means weeding out start-up and high-risk applicants. "By definition, these resources should be used for companies that have the ability to sustain growth for the long term, rather than start-ups which have a high risk of failure," Brown continued.
The Senior Director of Poľnobanka's Business Division, Anna Pilková, admitted that "we used to invest in both start-up and existing firms", but added that "our experiences have taught us what things we have to take into account... We try to exclude (bad) situations with prudent and non-traditional approaches." Pilková hastened to explain that the failure rates of the early ALP and SAEF projects were not excessive, keeping "in accordance with international rates."
The fund's current preference for established entrepreneurs, she conceded, may have more to do with the sheer number of applicants rather than risk management. "Many more projects were submitted than were accepted...[our 27 investments] represent only a small fraction of the response".
Miroslav Strokendl, Poľnobanka's Loan Division Director, said that the increased SAEF funding comes at a critical time for small businesses in Slovakia. "There was an imbalance between monetary and fiscal policy last year," he said.
"The loans to private clientele increased by 5 percent, and for the public sector by 30 percent, so they regulated the market and decreased liquidity," he added. The NBS's problems were exacerbated, Strokendl continued, when "speculative capital started to take advantage of the balance of payments' deficit." The upshot is the money supply shrank and interest rates soared to "between 20 and 30 percent as of the beginning of the year," Pilková said.
The ALP and SAEF, Strokendl concluded, are "the first chance for small and middle enterprises to get funding... I hope we can continue as successfully as in the past: certainly, the improved cash-flow will help our chances."
3. Jul 1997 at 0:00 | Tom Nicholson