In light of the recent Önancial and economic crisis the present paper analyzes the determinants of loan default. We employ a unique Örm-level panel data of 700 bank loans given to small and medium sized enterprises in Slovakia between 2000 and 2005 to investigate three loan default hypothesis. Testing the SectorRisk Hypothesis, we Önd that agri-food industry does not exhibit higher default rate than other sectors. Testing the Firm-Risk Hypothesis, we Önd that highly indebted Örms are more likely to default on their loan than other Örms. Testing the EU Subsidy Hypothesis we Önd that the newly introduced subsidy system, which is decoupled from production, provides a secure source of income and hence reduces the probability of loan default.