Currently, access to capital is still one of the major barriers for many small and medium enterprises.
Currently, outstanding credit for private enterprises reaches nearly 7 million billion VND, accounting for about 44% of the total outstanding debt of the economy. However, access to capital is still one of the major barriers for many small and medium enterprises.
According to a survey by the Private Economic Development Research Board, 51.5% of businesses have difficulty accessing loans. The main reason is that many businesses do not have enough collateral as required by banks.
Small and medium enterprises lack assets to secure loans
A factory of more than 2,000 m2 has more than 100 weaving machines with a total value of about 7 billion VND, but the total value of this asset cannot be used as collateral and the business owner still has to mortgage the red book to borrow capital from the bank.
Factories are rented while assets formed on land such as machinery and tools are difficult for banks to accept as collateral. This is the biggest difficulty that many small and medium-sized enterprises have to face, especially startups because these enterprises are not only limited in resources but also have low reputation.
According to Mr. Vo Thanh Tu – Vice Chairman of Long An Province Business Association, small businesses do not have many assets, so accessing bank capital is also more difficult.
A survey by the Central Institute for Economic Management shows that the proportion of small and medium-sized enterprises accessing financial resources through the banking system and other formal sources accounts for only 25%. The remaining 75% still have to mobilize from friends or informal sources of loans.
Cash flow transparency to access unsecured loans
Without collateral or a land title, it is difficult to access loans. This is not a new issue. Recently, the State Bank and commercial banks have sent out the message that collateral is not the most important factor when lending, but rather the business’s feasible business plan.
However, for newly established small businesses that have never borrowed from banks, if they do not have assets and are unable to repay their debts, the bank will also bear the risk of bad debt. Therefore, banks need to know the collateral assets as a reserve.
For businesses that have borrowed capital, banks have other forms of lending that do not require collateral, such as unsecured loans or output contracts based on orders.
A factory built more than a decade ago was mortgaged to the bank, the amount of money borrowed was not enough to meet the production needs of the business. However, thanks to the transparency of cash flow, the business has been able to access additional unsecured loans from the bank.
According to the company, with export revenue of about 100 billion VND/month, many banks have come to offer loans. Banks evaluate based on the cash flow and number of orders of the company.
Representatives of banks said that they also have difficulty in lending unsecured loans because the accounting system and financial reports of many small and medium enterprises are not transparent, making it difficult to properly evaluate business performance. Therefore, banks want businesses to be transparent about their cash flow and share their production activities with the bank.
Businesses with stable cash flow and high transparency have higher credit limits and vice versa. However, due to the lack of collateral, interest rates on unsecured loans are often higher than mortgage loans. Therefore, businesses need to consider financial options when borrowing capital.