Closing the Gap: How Financial Institutions Can Build Loan Readiness Among Young Romanian Entrepreneurs

Findings and recommendations from a study conducted for a Romanian commercial bank and its

microfinance subsidiary

by Andrei Stanciu, EMBA

Every year, more than 40% of SME loan applications submitted to Romanian banks are rejected
(National Bank of Romania, 2022), well above the 20–25% EU average (European Commission,
2022). But the rejection rate hides a bigger problem: many young entrepreneurs never submit an
application at all, convinced in advance that the answer will be no.

A consultancy project, not just an academic study

This article summarises the findings of an MBA thesis carried out as a business consultancy project for a leading Romanian commercial bank and its microfinance subsidiary, referred to here, for confidentiality, as “the Bank” and “the Microfinance Institution.” The goal was to understand what actually prevents Romanian entrepreneurs aged 18–35 from accessing bank financing, and what the institution can do to change that. The analysis draws on two established frameworks in the SME finance literature: Beck et al.’s (2006) cross-national study of financing obstacles facing small and young firms, and Owen et al.’s (2023) research on borrower discouragement, the phenomenon of entrepreneurs who would qualify for financing but never apply.

Five key findings

The financial literacy gap among young entrepreneurs is real, but much narrower than it first appears. This isn’t general financial illiteracy; these are people who run their businesses successfully day to day. The gap shows up in four specific areas that happen to matter most to a bank: understanding how a loan actually works, producing bankable documentation, defending credible financial projections, and understanding collateral options.

A bank’s biggest loss isn’t rejected applications. It’s the applications that never get submitted. A large share of eligible entrepreneurs decide, at some point, not to apply for financing they genuinely need, usually based on assumptions about the bank’s requirements rather than an actual conversation with a loan officer. This self-exclusion is invisible in a bank’s rejection statistics, which is exactly why it tends to be overlooked.

The businesses being turned away, or turning themselves away, are often not the problem. The information gap between what they bring to the table and what a bank needs to see is.

Front-line bank staff already carry out a significant amount of informal client education, explaining ratios and guiding applicants through documentation, but this support is inconsistent and depends entirely on which staff member the applicant happens to meet. The businesses behind most failed applications are not, in fact, bad businesses. They are businesses that do not yet know how to talk to a lender, a competence gap on the entrepreneur’s side, not a willingness gap on the bank’s.

The caution many young entrepreneurs feel toward bank borrowing isn’t a fixed cultural trait that financial education alone can undo. It shifts concretely after one positive, well-supported borrowing experience: a single successful loan tends to do more for an entrepreneur’s financial confidence than any amount of general training.

Generic financial literacy training doesn’t work well for this population, and can even increase discouragement rather than reduce it. What moves the needle is something far more specific: practical, timely guidance tied to the exact requirements of a real loan application, ideally reinforced by people who have already been through the process successfully.

Much of the advice aimed at this group is generic, “get financially literate,” “plan ahead,”

Much of the advice aimed at this group is generic, “get financially literate,” “plan ahead,” and it tends not to change behaviour, precisely because it isn’t specific enough to act on. A few narrower habits make a more concrete difference. Before approaching a bank, it’s worth asking a loan officer directly what would actually be assessed for a business of that size and sector, rather than assuming; the answer is usually more specific, and less intimidating, than expected.

Financial documentation is far more persuasive when it’s kept current year-round rather than assembled hastily for tax purposes and then adapted for a loan file at the last moment. A business’s own records are the first thing a lender reads as a signal of how seriously it’s run. A growth projection is only as credible as the reasoning behind it: a number should be defensible with a specific assumption an entrepreneur can explain out loud, not simply the revenue the business needs in order for the loan to make sense.

Collateral is worth exploring beyond real estate. Receivables, equipment, and guarantee schemes are often available and frequently overlooked by entrepreneurs who assume, incorrectly, that owning property is a precondition. And a rejection is more useful treated as feedback than as a verdict: asking specifically what would need to change for a future application tends to convert a discouraging experience into a concrete, fixable list rather than a reason to stop trying. Finally, a conversation with someone who has already been through the process, a peer, not a brochure, remains, by a wide margin, the input entrepreneurs trust most when deciding whether and how to apply.

Conclusion

Young Romanian entrepreneurs are not failing because they lack ambition or the ability to run good businesses. They are failing, or excluding themselves, because a specific, identifiable piece of information is missing. And unlike structural or cultural problems, information problems have solutions. Financial institutions that invest in preparing this segment aren’t performing an act of corporate responsibility. They’re building the quality of their own loan book for the next decade.