Collateral Requirements: The LTV Ratio and the Main Barrier to SME Finance Access

One of the key challenges for small and medium-sized businesses (SMEs) in Georgia is banks’ high collateral requirements for loans. Financial institutions impose collateral requirements as a risk mitigation measure to secure the repayment of borrowed funds.

Why Is This a Problem?

• Limited assets: Many businesses in Georgia do not have sufficient collateral. The LTV (loan-to-value) ratio — the relationship between the loan amount and the liquidation value of the collateral — is frequently problematic for SMEs.
• Risk assessment: To minimize risk, banks often require collateral in excess of the loan value.
• Growth constraints: Lack of collateral hampers SME development and expansion.

What Solutions Are Available?

• Alternative collateral mechanisms: State guarantees, specialized insurance products, accounts receivable financing (factoring and pledging).
• Use of legal resources: Improving judicial practice and developing mediation.
• Financial education: SMEs should familiarize themselves with the requirements of financial institutions.
• State support: Programs that facilitate SME financial access.
• Long-term capital: Pension savings create the conditions for the emergence of long-term capital to finance businesses through various financial instruments.