Capital market financing for SMEs in small markets: Insights from Slovakia
This blog post is a shortened and adapted version of the article published in the April 2026 CESGED Conference Proceedings. The full paper is also available on ResearchGate.
1. Introduction
Small and medium-sized enterprises (SMEs) are the engine of every economy. Yet when it comes to financing, most of them face the same challenge: where to find capital for growth? In theory, capital markets should represent an attractive alternative to traditional bank financing. In practice, however, the situation in smaller economies looks very different. In countries such as Slovakia, businesses remain heavily dependent on bank loans as their primary source of external financing.
The reason is not the absence of regulation or available financing instruments. Companies can issue bonds, attract investors, use crowdfunding platforms or even seek a stock exchange listing. In practice, however, only a small number of firms make use of these options. This situation is driven by a combination of market, institutional and behavioural factors that shape corporate financing decisions.
2. Market-Level Barriers
The first major challenge is the size and low activity of the domestic market itself. The Bratislava Stock Exchange (BSE) suffers from low liquidity and a limited investor base, discouraging both issuers and investors. According to OECD data, Slovakia ranks near the bottom in terms of both market capitalisation and the number of listed companies.
Table 1: Overview of market capitalisation and number of listed companies in selected markets
Data from the National Bank of Slovakia (NBS) as of April 2026 paint a similar picture: the regulated market included only 23 equity issuers and 63 bond issuers, while trading activity on the Bratislava Stock Exchange remained minimal.
Table 2: BSE number of trades and trading volume overview
Empirical observations from the BSE further confirm the structural limitations of the Slovak capital market. Low trading activity is not limited to the regulated market but is also evident on the MTF segment, which is significantly more accessible for issuers from both a technical and regulatory perspective. As shown in Table 2, the vast majority of trading activity on the BSE is concentrated in bonds, while equity trading remains minimal. The situation is similar on the MTF market, where only 138 trades with a total volume of EUR 81,939 were executed in 2024, corresponding to fewer than 12 trades and approximately EUR 7,000 in monthly trading volume on average. The MTF currently hosts 18 issuers, yet only two equity securities have been actively traded in recent months.
The practical experience of Slovak companies further illustrates these constraints. Asseco Central Europe chose to list directly on the Warsaw Stock Exchange in 2006 to access a broader investor base and support its regional expansion, but was eventually delisted as trading activity gradually declined. In contrast, Gevorkyan used its 2022 listing on the Prague Stock Exchange as a tool to raise growth capital, with investor demand significantly exceeding initial expectations, later complementing it with a dual listing in Bratislava. Similarly, Tatry mountain resorts (TMR) maintains listings on multiple exchanges to reach a wider regional investor base.
These examples suggest that for companies operating in small economies, cross-border access to capital markets may often be more attractive than relying exclusively on the domestic market.
3. Institutional Barriers
Across the European Union, businesses rely primarily on banks to finance their operations. In Slovakia, however, this dependence is particularly strong, with as many as 88% of SMEs relying on bank loans and leasing as their main sources of external financing.
Table 3: Structural characteristics of SME financing in the EU and Slovakia
The most commonly used bank financing instruments among SMEs are credit lines and overdrafts (48%), leasing (47%) and traditional bank loans (43%), while market-based debt instruments remain only marginally used. Firms' own preferences further reinforce this picture: across the EU, 63% of SMEs prefer bank financing, compared with only 8% that favour equity financing. In Slovakia, the preference for bank-based financing is even stronger, with capital market financing remaining relevant for only a small minority of businesses.
Existing lending relationships and bank covenants may also limit companies' ability to raise additional capital through bonds or other market-based instruments. As a result, capital markets are not only underdeveloped but are also partially crowded out by the dominant position of the banking sector.
4. Alternative Financing Channels and Their Limitations
Capital markets are often presented as a natural alternative to traditional bank financing. In practice, however, small and medium-sized enterprises make only limited use of corporate bonds, crowdfunding, private equity, venture capital or stock exchange listings. The main reasons include higher costs, greater complexity and, in some cases, the need to give up part of the ownership and control of the business.
Table 4: Financing options comparison
Corporate bonds represent a relatively accessible form of market-based financing, particularly when compared with raising capital through external equity investors. Their use among Slovak companies has been gradually increasing, with smaller firms often preferring smaller private issuances over public offerings associated with higher regulatory and disclosure requirements. However, broader adoption remains constrained by costs and administrative complexity, which is particularly evident in the case of green bonds, as no Slovak issuer has yet issued a bond under the European Green Bond (EuGB) framework.
Crowdfunding is a relatively new financing channel, with lending-based crowdfunding (crowdlending) accounting for more than 70% of the European market. Despite the introduction of the European ECSPR regulatory framework, its practical use remains limited. Many campaigns fail to reach their funding targets and additional restrictions, such as the EUR 5 million limit per project over a 12-month period, reduce its attractiveness for larger investment projects. In Slovakia, crowdfunding remains a niche source of capital, characterised by a small number of active platforms and relatively modest funding volumes. Successful campaigns remain the exception rather than the rule, limiting its role as a stable source of financing for SMEs.
Private equity and venture capital play a more significant role primarily in fast-growing and scalable businesses. Smaller family-owned or traditional companies often do not meet investors' expectations in terms of growth potential, governance structures or future exit opportunities. As a result, even Slovak investment funds such as Sandberg Capital and Neulogy Ventures frequently invest across the broader Central and Eastern European region rather than focusing exclusively on the domestic market.
Although alternative financing channels expand the range of options available to SMEs, they do not yet represent a full substitute for traditional bank financing in small economies, and their role remains largely complementary.
5. Behavioural Barriers at the Company Level
Financing decisions are not determined solely by economic factors. Ownership structures, managerial readiness and the preferences of business owners themselves also play an important role. Slovakia is home to many family businesses established after the political and economic transition of the 1990s, which are now facing generational succession for the first time. The decisions of their owners are often influenced by the historical and social context of the transforming economies of Central and Eastern Europe, in which this entrepreneurial generation grew up and shaped its attitudes towards ownership, control and external capital.
SMEs typically face several behavioural barriers:
- Fear of losing control: Many family businesses prefer to sacrifice faster growth rather than bring in external investors and share ownership or decision-making power.
- Resistance to transparency: A stock market listing requires companies to disclose detailed financial information and undergo audits, which many businesses perceive as an unnecessary and costly burden.
- Managerial limitations: Know-how is often concentrated in the hands of the founder, while professional management and governance structures remain underdeveloped. Slovakia also lacks a modern Corporate Governance Code tailored specifically to smaller companies.
- Succession challenges: As founders approach retirement, many businesses face generational transition for the first time. However, nearly two-thirds of Slovak family firms do not have a formal succession plan in place. The inability to separate ownership from management and the absence of flexible legal instruments such as trusts often lead companies to informal family transfers or liquidation rather than exploring market-based ownership solutions or external investors.
6. Conclusion
Getting Slovak companies onto the capital market is a long-term challenge. Small economies often find themselves trapped in a vicious circle: investors are reluctant to participate because there is little to invest in, while companies are hesitant to issue shares or bonds because there are too few investors to buy them.
If capital markets are to become a more significant source of financing for SMEs, a broader ecosystem approach will be needed — ranging from expanding the investor base and reducing issuance costs, to improving market infrastructure and financial literacy, as well as increasing companies' readiness to engage with investors.
Without addressing both structural and behavioural barriers, capital markets are likely to remain a complementary rather than a genuine alternative source of financing for most Slovak SMEs.
