The effects of bank capital and solutions for small and medium enterprise to well approach the bank loans
HỘI THẢO QUỐC TẾ: PHÁT TRIỂN
DOANH NGHIỆP NHỎ VÀ VỪA CỦA VIỆT NAM TRONG BỐI CẢNH CUỘC CÁCH MẠNG CÔNG NGHIỆP 4.0
THE EFFECTS OF BANK CAPITAL AND SOLUTIONS FOR
SMALL AND MEDIUM ENTERPRISE TO WELL APPROACH
THE BANK LOANS
Do Thi Hoan
University of Finance and Business Administration
Abstract:
When the economy was affected by the impact of the fourth industrial revolution, small
and medium-sized enterprises which were limited in capital, technology, scale, etc. were more
vulnerable in this context. To survive and develop in thí context, SMEs need to have solutions to
overcome their limitations. The paper has focused on analyzing the effects of bank capital on
SMEs; Access to capital situation; The reason why SMEs have difficulty in accessing bank
credit. From there, the author proposes solutions for small and medium enterprises to access
bank loans most thoroughly for business development in the context of Industry 4.0.
Key words: bank capital, SMEs, access to capital
TÁC ĐỘNG CỦA NGUỒN VỐN NGÂN HÀNG VÀ GIẢI PHÁP CHO DOANH NGHIỆP
VỪA VÀ NHỎ TIẾP CẬN TỐT NGUỒN VỐN VAY NGÂN HÀNG
Tóm tắt:
Trong giai đoạn nền kinh tế chịu sự tác động của cuộc cách mạng công nghiệp lần thứ
tư, các doanh nghiệp nhỏ và vừa vốn đã hạn chế về vốn, công nghệ, quy mô… thì trong bối cảnh
này càng dễ tổn thương hơn. Để tồn tại phát triển được DNNVV cần phải có những giải pháp để
khắc phục những hạn chế của mình. Bài viết đã tập trung phân tích tác dụng nguồn vốn ngân
hàng đối với DNNVV; Tình hình tiếp cận vốn; Nnguyên nhân các doanh nghiệp vừa và nhỏ khó
tiếp cận vốn tín dụng ngân hàng. Từ đó tác giả đề xuất các giải pháp cho doanh nghiệp vừa và
nhỏ tiếp cận nguồn vốn vay ngân hàng một cách triệt để nhất để phát triển doanh nghiệp trong
bối cảnh CMCN 4.0.
Từ khóa: Nguồn vốn ngân hàng, DNNNVV, tiếp cận vốn
1. Introduction
Small and medium enterprises are an important part of the economy. In recent years, the
number of small and medium enterprises has increased, accounting for a large proportion of the
total number of enterprises. These enterprises contribute significantly to economic growth, create
jobs and contribute to increasing incomes for the residents and social stability. This is an area
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that releases and develops production capacity, mobilizes and develops internal resources into
socio-economic development. In order to survive, develop and improve competitiveness, small
and medium enterprises desperately need capital to improve product quality, renovate
equipment, expand business scale, etc. However, at present small and medium enterprises are
facing several difficulties in approaching credit sources, especially medium and long-term
capital sources of banks.
2. Effects of bank capital on small and medium-sized enterprises:
2.1. Contributing to forming the optimal capital structure for enterprises.
To make investment decisions, enterprises may use two capital resources: equity capital
and borrowed capital. However, the demand for loans of enterprises is not satisfied and the size
of the loan still depends on the conditions of an enterprise, the loan rules of banks, the laws of
the State ... On the other hand, if the loan size is too large, it will increase interest expense,
resulting an increase in product price, affecting business profitability. Therefore, the enterprises
are forced to build the optimal capital structure. This is the best combination of funding sources
for an enterprise‘s activities with the aim of maximizing the market value of an enterprise at the
lowest average cost price.
2.2. Supporting for the establishment and development of small and medium enterprises
Banks give support to small and medium-sized enterprises from the business start-up and
throughout its operation and development. Without this support, small and medium enterprises
will face many difficulties in equipping material and technical facilities for production and
business activities, even if they cannot be incorporated. Many enterprises are born, but due to
limited capital, it is impossible for them to use modern technology and equipment, resulting in
low production and business efficiency, lack of competitiveness and the difficulties of firmly
standing in the market. In order to operate regularly and continuously, small and medium
enterprises must have adequate capital to meet the needs of production and business, while their
own equity capital and informal loans are very limited. So bank loans are an effective solution.
The bank loans also help small and medium enterprises to reproduce, expand and develop key
industries.
2.3. Contributing to improve the competitiveness of small and medium enterprises in the
market.
The characteristics of bank credit is not only capital financing, but also must ensure
timely repayment of both principal and interest. Therefore, when using loans, enterprises must
not only recover full capital but also have to find all measures to use capital in the most effective
way. On the other hand, banks only give loans when they have fully and thoroughly appraised all
relevant factors related to enterprises, especially the effectiveness and feasibility of business
plans and projects that need funding. Therefore, right from the beginning of the production and
business plans, enterprises have to already research and analyze carefully to increase the
feasibility of the plans, enhance the bank‘s trust in giving decision of financing. In addition, in
the process of credit granting, banks also advise enterprises to make the best investment
decisions, bringing about the highest profits for enterprises. At the same time, the periodical
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inspection of banks forces enterprises to do business properly, transparently, in compliance with
the law. On that basis, the healthy competitiveness of small and medium enterprises will be
increasingly improved in the market.
2.4. Contribute to promoting the equalization of state owned small and medium enterprises
In recent years, our State has been focusing on conducting the equitization of state-owned
enterprises. Specifically, enterprises, after the equitization decision, will issue shares, bonds or
other forms of capital mobilization to have working capital. Under these circumstances, banks
have also focused on developing services on the stock market to support enterprises such as
services of securities depository, stocks and bonds trading, underwriting, and financial
advising ... Moreover, enterprises can also use stocks and bonds as collateral to get loans from
banks. With this form of credit granting, enterprises shall be more assured when participating in
the equitization process and that is the driving force for the current equitization process.
Thus, in order for small and medium enterprises to be incorporated, to survive and
develop, they need support from banks, especially the credit capital. Therefore, permitting small
and medium-sized enterprises to approach and use the bank's capital for business activities is
important, necessary and proper, in compliance guidelines and policy orientations promulgated
by our Party and State in enhancing the support to the development of small and medium
enterprises in the current period.
3. Situation of approaching bank capital by small and medium enterprises.
According to Dr. Nguyen Van Than, Chairman of Vietnam Association of Small and
Medium Enterprises, presently, most private enterprises of small and medium scale desperately
need capital to invest in production and business. However, in reality, their financial capability is
really limited.
According to the latest survey of the Vietnam Chamber of Commerce and Industry, up to
70% of small and medium enterprises have not been able to approach credit resources, of which
nearly one third cannot approach to bank capital.
According to data from the State Bank of Vietnam, as of March 29, 2019, the outstanding
credit balance of the economy increased by 3.19% compared to the end of 2018, lower than the
same period in 2018 (3.29 %). Credit resources have been pushed to focus on priority areas as
per the Government's policy, in which, credit for supporting industrial sector increased by
3.63%, credit for high technology-applying enterprises increased by 7.25%, credit for export
increased by 3.5%. While the credit flowed into industries and sectors increased significantly,
the credit for SMEs increased slowly. Specifically, in the first two months of this year, the credit
for small and medium enterprises decreased slightly compared to 2018, with a decrease of
0.04%, expected to increase by 1% by the end of the first quarter of 2019, equivalent to the same
period of 2018.
According to Director of Thang Long Chemical and Equipment Joint Stock Company Le
Xuan Tuong, for small and medium enterprises, the first and foremost demand is capital. Up to
80% of enterprises go bankrupt due to lack of capital, and when enterprises have shortage of
capital, interest is not the biggest problem to them. ―When I first started my business, I borrowed
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up to 500 million VND with a very high interest rate to have capital, so I knew the newly
established enterprises really need capital. Currently, the company's capital is fully borrowed
from banks, not having to come to illegal credit, but in fact, up to now, the possibility of small
and medium enterprises in approaching capital, some procedures even take one or two weeks to
be completed. Therefore, I strong hope that enterprises shall have more support to approach
capital more quickly‖.
Perhaps not only in Vietnam but even in the world, small and medium enterprises are
always thirsty for capital. Being a type of enterprises that plays a very important role in the
economy, especially in Vietnam – a newly emerging economy, small and medium enterprises
account for over 90% of human resources, contributing a large proportion to the national budget,
but is also the sector that has the most difficulties to approach bank capital. Therefore, in order to
find out the causes and solutions to overcome limitations so that small and medium enterprises
can have better approach to bank loans, it is not only a problem for enterprises themselves but
also the problem of banks, Government, and even the whole society.
The current reality shows that although small and medium enterprises need capital and
banks have launched many preferential credit packages to attract enterprises, but the supply and
demand still have difficulties to match each other. So what are the reasons?
4. The causes that small and medium enterprises have difficulties to approach bank credit.
Small and medium-sized enterprises have not yet met the loan conditions due to: Limited
financial capacity, lack of reciprocal capital; non-feasible business plans, projects, spontaneous
production, low capital repayment capability...
- Small and medium enterprises with limited financial capacity. According to Director of
Thang Long Chemical and Equipment Joint Stock Company Le Xuan Tuong, for small and
medium enterprises, the first and foremost demand is capital. Up to 80% of enterprises go
bankrupt due to lack of capital, but when capital is insufficient, interest rates are not the biggest
problem. ―When I first started my business, I borrowed up to 500 million VND with a very high
interest rate to have capital, so I knew the newly established enterprises really need capital.
Currently, the company's capital is fully borrowed from banks, not having to come to illegal
credit, but in fact, up to now, the possibility of small and medium enterprises in approaching
capital, some procedures even take one or two weeks to be completed. Therefore, I strong hope
that enterprises shall have more support to approach capital more quickly‖.
- Along with procedural issues, another difficulty faced by small and medium enterprises
is that when granting credit, banks require collateral of high value such as housing and land.
However, the these assets are evaluated at a low level compared to the market value (from 20 to
25%) and the loans are given at the rate of 70%, making enterprises not have enough
accumulated assets to mortgage. ―The common difficulties of small and medium-sized
enterprises are that they do not have many collaterals to get loans or are not prestigious enough
to get credit. This makes the company, despite signing many contracts, not have enough funding
to buy raw materials for timely delivery.
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- Small and medium-sized enterprises have not set up strategies which are persuasive to
persuade sponsors, yet to set long-term business strategies. Therefore, enterprises fail to
convince banks to give loans, are incapable of developing feasible production, business, feasible
projects, etc. for commercial banks to consider giving loans. Meanwhile, banks put much
importance on the safety and security.
- Another reason is that the financial statements of small and medium enterprises do not
fully reflect the business results. Consequently, the analysis and evaluation of the financial
situation of small and medium-sized enterprises are not reliable enough, affecting the
commercial banks‘ decision to consider granting credit to enterprises.
In order to solve capital difficulties for small and medium enterprises, the author has
some recommendations as follows:
5. Solutions for small and medium enterprises to approach bank loans.
5.1. For Enterprises:
- First and foremost, small and medium-sized enterprises themselves must have feasible
plans, financial forecasts, operation plans so that when meeting with banks, financial institutions,
financial companies or investment funds, such enterprises can present, persuade them to invest
and sponsor.
- To restructure production and business activities in accordance with the current
financial situation and capabilities and strengths of enterprises.
- To internal management system, strengthen the strategy plan analysis, preparation,
strengthen financial management….
- To take the initiative in building projects, investment modes suitable to the capacity of
capital, technology and HR.
- To be financially transparent to use resources more effectively, reducing costs and risks
for both enterprises and banks.
- To contact the Credit Guarantee Fund for a guarantee if there is no collateral
- To fully understand the status of cash flow rotation and working capital deficit issues,
freeing cash from export invoices, improving the efficiency of revenues, reducing payment
processing costs, taking advantage of the surplus capital but still ensure approach to cash, reduce
risks and maintain profits ...
- To manage supply, secure payment for suppliers, taking advantage of buyers'
reputation to approach bank capital...
5.2. For banks:
For banks, they can open doors wider, as follows:
- The banking sector needs to have a more specific and rational appraisal process, be
ready to contact small and medium-sized enterprises and must have suitable products.
- To enhance the approach to official support funds or through programs and projects of
organizations, creating resources with low interest rates...
- To consider and promote the loan giving through unsecured loans, assess the efficiency
and profitability of investment projects to finance small and medium-sized enterprises.
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- To take initiative in sitting down with small and medium-sized enterprises, re-evaluate
debts, discuss, extend debt term, maturity, and accompany the enterprises in difficulty
overcoming and production restoration.
- To company many products and services provided to small and medium enterprises,
also to lower lending rates, support enterprises to manage more effectively, grasp market
conditions in more more fully and timely manner.
- To restructure debts, extend debts, give credit incentives to small and medium
enterprises doing business in the agricultural sector, if these enterprises can prove the revenue
sources to repay to banks; develop financial leasing form to help enterprises quickly innovate
technology.
- To create specific products for small and medium enterprises and mobilize long-term
funding for this sector
5.3. For state management agencies:
- The State Bank continues to provide capital through open market operations and
refinancing operations to support liquidity for commercial banks, and manage monetary
policies flexibly to regulate capital from the surplus sources to the insufficient sources, in
order to create the most favorable conditions for small and medium enterprises to be given
priority in terms of loans.
- The State should have policies to encourage commercial banks to give a high level of
credit outstanding ratio to small and medium enterprises.
- The State Bank needs to study and work out solutions such as refinancing, interest rate
subsidy, mechanism of determining debt groups and management mechanism of specific
appropriation and risk... The State Bank also needs to study, review the regulations on lending
documents for cases of resolving difficulties, securing 100% by deposit, in order to reduce the
records and procedures for corporate customers ‖,
Therefore, in addition to the efforts of enterprises, commercial banks also need to have
more specific policies, state management agencies must also have policies to support so that the
bank credit resources come close to the Small and medium enterprises
References
1. Nguyen Thi Cuc (2016), Improving loan efficiency for small and medium-sized enterprises,
Finance Magazine, May issue;
2. Financial Times (2018), "Solutions to remove difficulties on security assets when borrowing
phap-go-kho-ve-tai-san-bao-dam-while-borrowing-von-ngan-hang-61325.aspx;
3. Vu Duy Hao, Tran Minh Tuan (Editor in chief) (2016), Business Finance Curriculum,
2. Publisher of National Economics University, Hanoi
3. Vietnam Chamber of Commerce and Industry and Vietnam State Bank (2017), Credit
solutions for small and medium-sized enterprises, Curiosities for scientific seminars
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