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Financing a business

Debt financing

Debt financing is basically an acquisition of funds by borrowing. In Estonia, debt financing is mainly provided by commercial banks. Major banks of Estonia offer a large range of services, whereas smaller banks concentrate on a specific range of services.

The Estonian commercial banking market is divided by four major banks, all with foreign capital:

  • Swedbank (Swedbank Group) with the biggest market share;

  • SEB Bank (SEB Group);

  • Nordea Bank Finland PLC Estonia Branch;

  • Danske Bank A/S Estonia Branch.

In total there are seven licensed banks and 11 branches of foreign credit institutions in Estonia.

Debt financing provided by banks can be divided into two categories, based on the type of loan you are seeking: short term debt financing and long term debt financing.

Short Term debt financing is essentially to provide capital deficit businesses funds for a short-term period of no more than a year.

  • An Overdraft is a short-term credit that is bounded to the company's current bank account. It allows the company to withdraw or spend more money than it has, up to an agreed limit, known as the "overdraft limit". An overdraft is designed to meet the liquidity needs and balance irregular cash flow.

  • Working Capital Loan (current capital loan) is a special purpose loan for short-term financing of additional needs in working capital.

  • Loan for agricultural enterprises is provided for companies in cooperation with the Rural Development Foundation (RDF). Credit institutions are granting financing for primary producers in the agricultural sector and issuing loans on favourable conditions. The purpose of this loan is to support agricultural producers and other undertakings operating in rural areas to assure better access to financial resources that are needed for development of the economic activity.

Long Term debt financing is a form of financing that is provided for a period of more than a year. Long-term financing services are provided to those business entities that face a shortage of capital.

  • Investment loan is a long-term loan, the purpose of which is financing new projects such as acquisition of fixed assets or building office, warehouse or production facilities. The financed period for investment loans varies depending on the credit institution, but usually does not exceed 15 years.

  • Start-up loan is meant for companies just starting in business that often have no strong assets. A start-up loan enables an entrepreneur to manage the business- and loan-related risks, as in comparison with ordinary loans they have to take smaller risks with their own property.

Most of these loan types require collateral in order to secure the credit institution's financing; in addition to a mortgage, the company can apply to Kredex for supplementary collateral to the extent of up to 75% of the credit amount.

In the case of a rural life and agriculture loan, the company can apply to the Rural Development Foundation

These guarantees are meant for small and medium-sized enterprises that are just beginning their business or cannot secure a bank loan.

In addition to the above-mentioned services, credit institutions also provide car and equipment leases and factoring services.

Biggest banks

Equity financing

Equity financing is an alternative to debt financing and is basically an acquisition of funds by selling common or preferred stock to individual or institutional investors. In return for the money paid, shareholders receive ownership interests in the corporation.

A company can finance equity through:

  • Private equity companies financed by institutional investors (such as investment banks, funds etc) and private investors. There is a wide array of private equity types and styles and the term ‘private equity' has varying connotations in different countries. Among them are:

    • Venture Capital (also known as VC or Venture) is a type of private equity capital typically provided to early-stage, high-potential growth companies. Generally, VC fund investors accept a higher risk of failure than is normally the case for other more conservative investments.

    • Mezzanine capital is a broad financial term that refers to unsecured, high-yield, subordinate debt or preferred stock. Mezzanine capital represents an intermediary between equity and debt in a company's balance sheet.

  • Initial Public Offering (IPO) also referred to as a "public offering" or "flotation," is when a company issues common stock or shares to the public for the first time. The money paid for the new shares to the company will be used for new investments, lessening the loan burden etc. The initial public offering is usually followed by listing the company's shares on the stock exchange: http://www.nasdaqomxbaltic.com

    • First North Baltic is an alternative marketplace for small growth companies, providing a wealth of opportunities on the Baltic financial markets. First North is a part of NASDAQ OMX Nordic Exchange

The list of institutional investors in Estonia:

Account operators


Investment companies


Investment banks


Venture Capital


Private Equity


Real Estate Investors

Mezzanine Financing

Funding programmes

EU Structural Funds

Structural Assistance is allocated by the EU to Estonia for the purpose of supporting development of the economy in Estonia. Structural Assistance is allocated from three funds:

  • European Regional Development Fund (ERDF);

  • European Social Fund (ESF);

  • Cohesion Fund (CF).

In the period of 2007-2013 Estonia was allocated more than EUR 3.4 billion from the Structural Assistance, which will be channelled to the following fields:

  • energy economies;
  • entrepreneurship;
  • administrative capability;
  • education;
  • information society;
  • environment protection;
  • regional and local development;
  • research and development activities;
  • healthcare and welfare;
  • transportation;
  • labour market.

Grand types and requirements can be found on the European Union Structural Funds' homepage.

Enterprise Estonia (EAS) promotes business and regional policy in Estonia and is one of the largest institutions of the national support system for entrepreneurship in Estonia, providing financial assistance, advisory, cooperation opportunities and training for the entrepreneurs, research establishments, public and third sector.

Grand types and requirements can be found on the homepage of Enterprise Estonia.

"Financing a business" text compiled by Ernst & Young Baltic AS.