Access to financing has long been a challenge for Estonia’s small businesses, creating a significant bottleneck for economic growth. However, the unexpectedly rapid decline in Euribor presents an opportunity that could prove transformative—if leveraged effectively, notes Kristi Hõrrak, a board member of Finora Bank.
A Faster-Than-Expected Drop
The European Central Bank’s decision to lower its base interest rate has caused Euribor to fall more quickly than anticipated. Already below the critical 3% threshold, the rate is projected to approach 2.5% or even lower within the next six months.
In Estonia, conversations about Euribor primarily revolve around the real estate sector. Two dominant narratives have emerged: first, declining rates are making residential properties more affordable, potentially revitalizing the housing market. Second, lower Euribor is easing and incentivizing large real estate transactions, encouraging more Estonian capital to flow back into domestic commercial real estate, particularly in light of geopolitical factors.
Both perspectives are valid. Yet, what often goes unnoticed is Euribor’s potential to breathe new life into Estonia’s broader business ecosystem. While real estate is a visible and easily understood sector, the real long-term impact of falling Euribor lies in its ability to boost the competitiveness of Estonian businesses and improve citizens’ incomes.
Limited Access to Financing Hinders Growth
Access to financing remains one of the primary challenges for Estonian small businesses. Data from the European Commission, the European Investment Bank (EIB), and the OECD paint a clear picture. According to a recent EIB survey, 13% of Estonian companies that applied for loans had their applications rejected, compared to just 6% in other Central and Eastern European countries. Additionally, 25% of Estonian SMEs cite financing as a major concern—a figure significantly higher than the European average.
Why does this matter for the entire economy? Because Estonia’s living standards are directly tied to the success of its small businesses. SMEs employ the majority of Estonia’s workforce and contribute a substantial share of employment taxes. These thousands of companies—typically with fewer than 100 employees and annual revenues in the millions—often operate behind the scenes but play a far larger role in the economy than Estonia’s well-known big brands.
Driving Automation and Export Growth
Euribor’s decline creates a more favorable financing environment in two key ways. First, increased competition in the banking sector—driven by the emergence of new domestic banks—has already improved SME access to growth financing. Second, falling Euribor lowers the total cost of loans and leases, encouraging businesses to take on external funding.
With a lower debt burden, SMEs have a better chance of passing banks’ risk assessments, making it easier to secure loans for development. This is particularly important now, as the rapid drop in Euribor significantly enhances thousands of businesses’ ability to raise capital. Each reduction in interest rates allows more companies to move forward with projects that were shelved during high-inflation years.
This is not just theoretical—it means tangible investments in advanced technology and the expansion into new markets.
Support Networks Must Step Up
Estonia’s low-wage economy is a thing of the past. The country’s future hinges on creating higher value and driving more dynamic exports. The falling Euribor has created the capacity for hundreds, if not thousands, of SMEs to achieve this.
However, having the means is not the same as realizing the potential. To fully capitalize on this opportunity, Estonia’s entire SME support network—both financial institutions and public sector entities—must actively step in. Entrepreneurs need guidance on how to utilize these favorable conditions effectively, along with encouragement to take measured risks. Banks and public institutions alike should focus on education and advocacy, ensuring that businesses understand the possibilities and act strategically.
A Broader Perspective
While large-scale industrial projects and foreign investment often capture headlines, they are just one piece of the puzzle. The quieter, everyday operations of Estonia’s SMEs play an even more critical role in driving economic prosperity.
By providing the right support and embracing the opportunities presented by Euribor’s rapid decline, Estonia can empower its SMEs to thrive—ensuring a stronger, more resilient economy for all.