After years of doing business with HVB Bank, Jo Weaver, the owner of JWA Prague, thought she'd have little trouble getting a loan to finance the purchase of new office space for her company. She was wrong.

Far from being treated like a valued, long-term client with millions of crowns circulating through four separate accounts every month, Weaver, who is also chairman of the British Chamber of Commerce, said she felt like a stranger coming in off the street when she approached the bank for a small business loan this summer.

For one thing, the bank asked her to fill out and submit a stack of forms detailing the operations of her business. The documents were so intricate, she said, it cost 3,000 euros (89,010 Kc/$3,630) in accounting fees to complete them. Even then, she said, it wasn't enough.

"They wanted everything," Weaver said. "And when they had it, they wanted more."

After six weeks, Weaver, concerned about losing the property, asked the bank for a meeting to reiterate her position and get a final answer. The property cost 7 million Kc ($288,540). She would put up 3 million Kc and offer her flat, completely paid for, as collateral. Would the bank go for it? Their answer, after some deliberation, was no.

HVB Bank could not comment specifically on Weaver's case for legal reasons. Bank spokeswoman Petra Kopecká said that loan applications are considered on an individual basis and that HVB lends more to small and midsize enterprises (SME) than other banks.

Yet for many SMEs in this country, Weaver's story probably doesn't come as a surprise. SMEs often complain that it is too difficult to get bank financing and resent what they consider to be second-class treatment from lending institutions. This is despite the fact that SMEs, not large corporations, drive the majority of employment and economic growth in this country.

Banks too cautious

SMEs are generally defined as having fewer than 250 employees and less than 50 million euros in annual turnover. Neither the Czech National Bank nor the Finance Ministry collects data on how much money banks lend to SMEs, and international economic watchdogs, such as the Organization for Economic Cooperation and Development and the World Economic Forum, don't monitor lending rates in European Union countries.

This dearth of concrete data makes it hard to prove SMEs' case one way or the other, but anecdotal evidence and the opinions of experts point to a finance gap.

"[Access to financing for SMEs] remains an enormous problem," said Bedřich Danda, chairman of the Association of Entrepreneurs of the Czech Republic. "SMEs cannot get a bank loan. Even if an SME asks for just 300,000 Kč or 500,000 Kč and offers property worth 1 million Kč as a guarantee, he still won't get the loan."

The problem, according to observers, is that banks are simply too cautious. This may be a result of what is widely recognized as a period of reckless lending during the 1990s. Banks, which were then state-owned but undergoing mass privatization, accrued so much debt from faulty loans that the government had to cover their balance sheets to the tune of hundreds of billions of crowns.

Banks concede that they haven't forgotten this disastrous period but argue that not only are they willing to lend to SMEs, but they're also eager to do so. Česká spořitelna, one of the country's largest banks, has commercial business centers to serve exclusively SMEs and a department within the bank that develops products geared to small businesses. It even offers free consulting on how to attain EU Structural Funds.

Yet many small-business owners maintain that though banks have strong rhetoric, they're either unwilling — because of risk — or unprepared to back it up.

At a recent seminar on bank financing held at the offices of the American Chamber of Commerce, several people voiced frustration over bankers who are unprepared to deal with SMEs because they don't understand how businesses operate.

For instance, tax optimization, the practice whereby companies try to decrease profit by legal means as much as possible to pay less tax, is essential to operating a small business.

Yet if a banker doesn't understand this principle, a loan application might be rejected on the grounds that the company isn't making sufficient profit to repay the debt.

A quick swing by the company's office or a look at its credit history would likely be enough to determine whether the company will pay, but SMEs have complained that banks aren't willing to take that step.

Sharing the blame

Margareta Křížová, director of SME Business Development at Central European Advisory Group, said it's widely known how difficult it is for all but the largest SMEs to get financing.

She emphasized, however, that the blame extends beyond banks.

SMEs in this country suffer from a lack of educational resources, such as the Small Business Administration in the United States, she said, and often aren't on the ball when explaining to banks their need for financing.

Banks would also emphasize that lending is a highly personal process between a banker and a debtor and that an SME shouldn't give up a quest for a loan after one rejection. It should keep looking for a bank that understands it.

This strategy worked for Weaver. After being turned down by HVB Bank, Weaver went to Volksbank, where her loan was approved in a week. She is currently in the process of transferring all four of her accounts to Volksbank.