Who is driving the economy in the advanced states on our planet? First of all, enterprises belonging to the medium and small format. In Russia, the situation is not so positive, but tangible shifts for the better are noticeable. In recent years, the state has put forward a lot of proposals that help small businesses to get on their feet, grow stronger and come to success. Many say that medium and small businesses still do not occupy a proper position in the market due to certain difficulties of lending programs.
Financing: there is something to strive for
Lending to small businesses is really a sore spot for modern banks. Even if such structures want to collaborate with a novice entrepreneur, they often assess the risks as too high and eventually refuse to work. Thus, the path is blocked both for the banking structure and for the potential businessman who will never conduct business without receiving initial capital.
As practice shows, entrepreneurs have mastered and comply with tax rules and legal support of business. But when it comes to financing, difficulties begin - no one is ready to take the additional risks of lending to small businesses. As a result, profile loans or targeted financing programs turn into a headache. They are on paper, the desire to use them is the same, but in practice it fails.
Is bankers business?
Of course, I immediately want to believe that lending to small businesses in Russia has become such a problem precisely because of the reluctance of banking organizations to assume the risks associated with such investments. But is it only in their personal opinion and initiative that matters?
For several decades now, the economic situation in the state has been very difficult, and right now, not only our country, but the whole world is in crisis. Undoubtedly, the economy is moving forward, and ways and ways out of the crisis have already been outlined, nevertheless, the real situation is extremely tense. But here a vicious circle is observed: then the economy will become prosperous when many successful firms appear, but in order for them to start their work, they need money that banks do not allocate due to the difficult economic situation. At the same time, a loan fund for small and medium-sized businesses is the only real way to obtain funds that will allow:
- start a business;
- expand the format;
- to develop an enterprise;
- upgrade the production line;
- introduce innovations;
- replenish current assets.
Such cases are frequent when a small business lending program literally saves you from bankruptcy.
Do not give in to beautiful candy wrappers
Lending to small businesses in Russia is served with a sauce of advanced programs that are most beneficial for all parties - from the business owner directly to the whole country and even the world as a whole. But you need to be careful: the interior of such a package is not always as attractive as the outside.
What is this about? In recent years, banks have shown surprising activity in the field of lending to small enterprises. They conduct advertising campaigns and regularly convene large conferences, inviting participants from different regions to exchange experiences, as well as apply for credit services.But what happens in practice? The conditions for lending to small businesses are so severe that they often don’t even get real money: entrepreneurs are simply not able to satisfy all the requirements of the lender, therefore they are refused.
Classic difficulties for the bank
Why are banking institutions so reluctant to lend to small businesses? Main reasons:
- non-transparency of entrepreneurship;
- low level of legal, economic education of the entrepreneur;
- lack of guarantees of subsidies from the state;
- the probability that the money will not be returned.
The risk of the last year is only growing. This is shown by studies conducted by experts over the past few years.
Classic challenges for entrepreneurs
If you study the issue from the point of view of those who start their own business, you will notice that the set of basic problematic issues is different. Key issues that concern businessmen in need of money:
- high interest rates;
- lack of real benefits;
- long term study of the application;
- harsh conditions, low customer awareness when applying for a loan;
- insufficient government support;
- lending to small businesses "from scratch" as such is absent.
Market realities
It can be noted that banking structures, which are divided into two large groups, are ready to take on the financing of small and medium-sized businesses. These are regional organizations, often of a small format, but working reliably and having weight in the economic community of their region. They really know the specifics of the area, the economic structure, so they can evaluate which projects will bring benefits and which will turn out to be an unjustified risk.
The second group of financial companies that promises loans to small businesses is large banks that operate throughout the country and specialize in interacting with enterprises.
Both options are characterized by exceptional bureaucratization of the system, which creates big problems for real business. On the other hand, there are certain positive aspects. In particular, local banking institutions are developing small business lending through contacts with regular customers. Large organizations have greater resources, so they can offer incentives or more favorable conditions if entrepreneurship seems promising to them.
Lack of education
Studies have shown: support for lending to small businesses stops at the step when it is revealed that the entrepreneur has no special education in either finance or jurisprudence.
This obstacle cannot be underestimated. Few banks are willing to work with people who are just starting their own business and are not able to document that they understand how things are going in the current market conditions. You can say for a long time and beautifully that you know exactly “how it works,” but it is important for a financial institution to have confirmation that these are not empty words. The best such evidence is education paper.
Deep Interconnection
The economy is a sphere in which everything that happens is very closely interconnected. So, the Bank of Russia raises the rate, after that all private banks raise their rates, while the inflow of funds from external sources is reduced. This ultimately hits businesses at all levels. Of course, even in such conditions, Sberbank presents small business lending as profitable and affordable for everyone, but with a detailed analysis of the proposals of this largest company, which everyone else is guided by, it becomes clear that small / medium-sized businesses are unlikely to receive anything.
In recent years, loans have been issued more and more limitedly, the requirements for applicants are growing to impracticability. The same goes for assets.In addition, rates are rising significantly. Banks attribute this to increased risks and the fact that overdue debts are accumulating more and more. The key argument is the fact that small business is in poor condition. The Bank of Russia is carefully studying private organizations regarding the quality of their assets, and this is also becoming a problem because of which a small business lending program is not being implemented.
Do not check - do not guess
Bank structures cannot be criticized for not promoting lending to small businesses without collateral. Now in the economy, the golden rule “Cutting off once, measure seven times previously” is working.
Such behavior of financial organizations is a measure of stabilization of the loan portfolio, which allows making risks less significant. In addition, paperwork, in addition to many negative aspects, has one positive aspect, namely, a decrease in the interest rate in case of approval of a loan. This is due to the fact that the bank will evaluate the client as reliable and will be ready to offer him a more convenient and profitable program.
How to get a loan
Perhaps the most common lending program (it is also promoted by the Small Business Lending Facility) is the work with collateral. Of course, even today you can find a structure that agrees to provide money without collateral, but this happens more rarely than often - every year the number of loans without collateral decreases by another third.
Those companies that are confident in their assets are most actively promoting credit without collateral. At the same time, they give rather high interest rates, and also introduce a commission. Such loan programs are rarely designed for more than two years. But the bank will issue loans for a long period only if the entrepreneur can offer a serious project, backing it with his property. Now analysts suggest that banking institutions will be able to create a risk portfolio that will be beneficial for both a financial company and a client-entrepreneur. This will be useful for both parties to the transaction and the state economy.
Entrepreneurship now and then
Why do officials, economists, and financiers so amicably say that the Small Business Lending Facility is important to the country as a whole? Everything is very simple: it is this segment of business that allows you to stabilize the social situation in the state, economic, and also helps to introduce innovations and modernize the existing system as a whole. Only thanks to small business import substitution, diversification are possible. Business has become a powerful method of solving social problems that have accumulated in our country.
According to experts, the problems of lending to small businesses are not the difficulties of individual individuals who want to succeed in the business world, but an important task that must be solved by all means. Now business opportunities are used inefficiently, and the economy is rather poorly developed. This is especially noticeable when conducting a comparative analysis of Russia and the developed countries of the world.
According to experts, the solution to the problems associated with small enterprises should begin with the solution of the issue of lending to this business sector. Statistical studies allow us to conclude that now the need for funds in the context of the small and medium business format is satisfied by no more than a third. Up to 30%, in principle, have no access to credit, and about 44% say that borrowing funds for their companies is too difficult.
However, if we turn to history, we can find out that before the crisis of 2009 in Russia loans to small enterprises were provided 15 times less than in European countries, 20 times less than in Japan, while the needs of those in need were satisfied only 15% cases.That is, the situation is already getting better, which, however, does not negate the severity of the problem of lending to small businesses.
Problem Solving Tools
As history has shown, the largest increase in the inflow of money into entrepreneurship by banking institutions was observed at a time when new companies began to enter the money market en masse. They launched a large number of lending programs, resorting to all possible mechanisms to support government loans issued for business.
But it was precisely at that time that negative trends were laid, which to this day affect the financial situation in the country. We are talking about "credit factories", which not only quickly examined applications, but did it irresponsibly, which reduced the quality of the financial product. Because of this, the structure as a whole deteriorated, which led to the current situation, when every self-respecting bank really measures seven times before starting to cut - and it can still change its mind.
How did “credit factories” try to solve the problems of lending to small businesses? They offered everyone an annual program in the amount of three million rubles. They were primarily intended for the commercial sector. As soon as a new crisis began, along with which the purchasing power of ordinary people fell, this business showed its bankruptcy. As a result, banks began to look primarily at less risky areas.
So where are we going?
Bureaucracy
Analyzing all of the above, we can safely say that the problems of lending to small businesses begin with the bureaucracy. For an organization to receive borrowed money, it must prove to the bank its viability. Even if this is a relatively small amount that the entrepreneur wants to take for a short time, he still has to prepare documents that will assure the financial organization of its reliability. You will also have to draw up a business plan that clearly describes how the funds will be spent if the bank approves the loan.
It is necessary to bring a certificate of registration and personal documents of the organizer of entrepreneurial activity, request tax certificates and generate reports for at least six months, or even a year. Bank representatives will analyze the indicators, calculating what the prospects are for such a business. They will evaluate the profitability, they will literally take everything apart by bricks, and only after that will they make the final decision.
Subtleties:
- opacity of accounting documents;
- the need to receive money by companies that have just opened;
- work on a simplified tax scheme that does not allow controlling the organization’s turnover.
Bureaucracy is a risk insurance system. Small and medium-sized businesses rarely have a positive history of loans, especially in our country; financial institutions simply do not have a sufficient base outside the bureaucracy that allows them to draw conclusions about the benefits of working with a particular applicant.
Collateral and guarantors
In the case when the entrepreneur has a pledge or responsible persons are ready to vouch for it, the credit problem becomes less acute. True, this does not apply to the target loan, since the bank will give money to the businessman as a private person, without monitoring what these funds will be used for in the future. Unpleasant aspects:
- lack of own property that could be used as collateral;
- the possibility of obtaining no more than 70% of the estimated price of the pledge
- payment of assessment by the borrower.
As for the guarantors, then things are somewhat more complicated. Banks are ready to give money, if there are those who are ready to vouch for your business, only finding such individuals is very difficult.
Issue price
Finally, as follows from all of the above, the problem of obtaining loans lies also in their high cost.Of course, if you were able to satisfy all the conditions of the bank, then you can count on a relatively low rate, but if the money was received bypassing a particular requirement, then agreement from the financial structure can only be achieved in exchange for raising the interest rate.
Small business is traditionally considered a risk zone, so banks, by lending money to companies, create 100% reserves for themselves, taking into account how much money was spent to check the reliability of this borrower. All these expenses are also included in the cost of the loan, which you will have to repay.
In recent years, the practice of obtaining microloans has become quite widespread. They are issued by small companies that are not so responsible for the analysis of a potential borrower and are ready to provide only a small amount. A similar scheme has already been written above. Today, this will work out with a company that already has a license for lending. If you liked the conditions of a particular offer, first check if the company is legal in order to avoid problems in the future. Such a loan will be issued for a period of two to five years and for a small amount, but at a high percentage. This option is good as a backup. Increased interest is associated with the fact that the company assumes in advance that money will not be returned to its account.
The main task of an entrepreneur is to find a program that will not “eat” all his profits in percent. It often happens that at the initial stage the company should try to get out on its own without resorting to borrowed money - it is they who ultimately can “sink the ship”.
What to do?
So what to do? If you need money urgently, but you still have not seen any reports and other documentation on the company and you do not have to count on it, then try to contact organizations that issue money at barbaric interest, but with minimal requirements for the candidate.
If you have liquid assets, then it is better to work with a bank ready to consider it as collateral. But if you have a good credit history, and in addition to it also a legal education, then you can get an inappropriate loan at a large bank.