Due to low financial capacity, most SMEs often use outdated technology and equipment. The investment in upgrading outdated machinery and equipment also requires good financial capacity, allowing long-term investment, while in Vietnam, investment capital in technology is a source of capital that is difficult for SMEs to obtain. accessibility.
According to the Communist Journal on February 22, 2013, currently, the machinery and equipment being used in Vietnamese enterprises are only 10% modern, 38% average and 52% outdated. very backward; the rate of using new high technology is only 2% (while in Thailand it is 31%, Malaysia is 51% and Singapore is 73%). Vietnamese enterprises invest in technology innovation very low, only about 0.2% – 0.3% of total revenue. This situation is posing great challenges to the competitiveness of the SME sector, especially in the context of current deep international integration.
SME managers are often not properly trained in expertise and professionalism, and lack adequate understanding of corporate governance. The survey results of the Department of Small and Medium Enterprises Development show that in Vietnam, up to 55.63% of business owners have a secondary education or less. Specifically, the number of people with doctorates accounts for only 0.66%; masters 2.33%; graduated from university 37.82%; college graduates accounted for 3.56%; professional secondary school graduates accounted for 12.33% and 43.3% had lower qualifications.
It is worth noting that the majority of business owners, even those with college and university education or higher, are not trained in economic knowledge and business administration, but still mainly do business. experience-based business, mission-based business. This has a great influence on the development strategy, business orientation and management of enterprises. In addition, SMEs also have a low and low quality labor force. The reason is that SMEs are not able to attract high-quality human resources because the working conditions and working regime in SMEs do not meet the salary and bonus requirements as in large enterprises.
SMEs have a simple organizational structure, a compact organizational structure, and a small number of employees. The majority of SMEs in Vietnam are family companies, operating under a self-governing model, the management levels from director to chief accountant and heads of departments (if any) are someone with a close relationship. family, have not undergone basic training in management and business skills, only run businesses based on experience, laborers working in SMEs are mainly manual and skilled workers. short. Therefore, often, SMEs often experience unfortunate events such as unintentional violations of state regulations and international practices, inefficient business activities leading to bankruptcy. The advantage of this feature is that SMEs are flexible, easily adapting to changes in the market.
With these characteristics, it can be seen that the role of SMEs in Vietnam is very large. Businesses not only play a role in stabilizing and developing the economy, but also create jobs for workers, help people increase their incomes, contribute to poverty alleviation, and help stabilize and progress society. . With a large number and a flexible and flexible mechanism, SMEs create rich and diverse products in terms of categories, capable of meeting the increasing demands of society. Small-scale SMEs should be distributed over most localities, helping to attract investment in the population and make optimal use of local resources.
In addition, SMEs will be the driving force to promote agricultural production, will form industrial clusters and clusters to influence specialization, accelerate the process of industrialization and modernization of the country, make an important contribution in creating a balanced development and transforming the economic structure according to the territory. However, besides the positive points, small and medium enterprises also have limitations, especially in today’s fiercely competitive environment. Therefore, supporting the development of small and medium enterprises is an extremely necessary task that the Party and State are setting out to ensure the long-term and sustainable development of the economy.
1.2. Basic issues of lending activities for small and medium enterprises at commercial banks
1.2.1. The concept of lending activities for small and medium enterprises at commercial banks
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According to Decision No. 1627/2007/QD-NHNN dated December 31, 2001 of the Governor of the State Bank on the issuance of regulations on lending by lending institutions to customers: “Lending is a form of lending. granting a loan, whereby a lending institution assigns a customer a sum of money to be used for a certain purpose and for a certain period of time according to an agreement on the principle of repayment of both principal and interest.
The definite term here is the loan term.” Or according to Assoc. Prof. Dr. Mai Van You (in the textbook of Commercial Banking, 2011), the concept of a loan is understood as: “A loan from a commercial bank is a temporary transfer of an amount of value from a commercial bank (the person who is a commercial banker). ownership) to customers (users) after a certain period of time, they return to commercial banks with a larger value than the original value. From the above definitions of lending, lending to SMEs can be generalized as follows: “SME lending by commercial banks is a form of credit whereby the Bank assigns capital to SMEs for use in the future. purpose of investment, production and business development of their enterprises for a certain period of time according to the agreement between the bank and the SME with the principle of repaying both principal and interest according to the committed time limit.
1.2.2. Principles of lending to small and medium enterprises
The SME lending activities of commercial banks must be based on certain principles to ensure safety and profitability. These principles are concretized in the regulations of the State Bank with commercial banks. Principle 1: Use the loan for the right purpose as agreed in the loan contract.
In order to ensure the bank’s ability to recover capital, SMEs must commit to using capital for the right purposes as agreed in the loan contract, using capital effectively and not contrary to the provisions of law. . The borrower’s effective business plan/project demonstrates the ability to recover investment capital and make profits to repay the bank’s debt, the bank’s grants must be associated with asset formation. of the borrower.
Moreover, the purpose of using the loan is the initial basis for the bank to evaluate the feasibility and efficiency of the customer’s business plan, and is the basis for making the bank’s lending decision. Only when the customer fulfills the initial commitment and uses the loan for the right purpose as agreed, will it ensure efficient production and business activities and the ability to repay the bank’s debt. Bank operations will be affected, especially solvency, and may face risks if SMEs operate inefficiently or misuse capital. The second principle: Repay the loan principal and interest on time as agreed in the loan contract.
The bank’s activity is to borrow to lend, so most of the bank’s lending capital is mainly derived from customers’ deposits, the bank temporarily manages and uses those funds and must be obliged to refund when the customer needs to withdraw money. If the loans are not repaid on time, i.e. the bank fails to repay the customer’s deposits, the bank’s operations will be affected and the bank’s reputation will deteriorate. Therefore, SMEs must commit to repay both principal and interest within a specified time. This principle is set out to ensure the existence and sustainable development of commercial banks.
1.2.3. Features of small and medium business loans
Like other types of loans, lending to small and medium-sized enterprises has the common characteristics of lending activities, besides this type also has some outstanding features as follows:
SMEs have low equity and weak management capacity, therefore, lending to SMEs always has high risks in each loan. Therefore, banks must be stricter in the lending process and conduct loan supervision. Moreover, SMEs are still very limited in offering highly viable business plans, financial statements are not transparent, not convincing enough for banks, these are the reasons why for banks with less confidence to allocate capital to SMEs.
The size of SME loan contracts is usually small, but banks still have to carry out lending procedures including all stages such as finding out information about customers, pre-lending appraisals, etc., which increases borrowing costs. Enterprises not only have to pay the prescribed lending interest rate, but also have to pay the costs of all the above lending procedures, resulting in the SME’s actual lending interest rate being even higher than the lending rate. loans from large enterprises. While SMEs are subject to interest rate support due to many difficulties in capital.
The number of SMEs in the economy accounts for the majority, the demand for loans is large, so the number of loans is high. On the other hand, due to business characteristics, SMEs have a constant exchange and trading relationship with their customers, each item has not much value, but due to the need to borrow capital, businesses can create many separate sub-accounts. especially at banks, causing many difficulties in managing loan accounts of credit officers. Therefore, lending to SMEs requires credit officers to be experienced, have a reasonable way to arrange and manage loans, and limit errors that affect the efficiency of lending activities. .
SMEs often borrow capital to meet additional working capital needs, pay for short-term activities such as purchasing raw materials for production, paying employees’ salaries, borrowing according to credit lines to meet transactions. sales with suppliers…. Therefore, the duration of SME loans is usually short.
Information about SMEs is often difficult to identify due to incomplete and detailed accounting documents and books, through which loans often carry many risks. Banks often require businesses to have collateral when borrowing. capital. Collateral is an important condition for the bank to make a decision to lend a business as well as to decide on the size of the loan. However, most SMEs in Vietnam do not have, do not have enough collateral for loans, or if they do, they do not fully meet the requirements of loan collateral as required by banks. Therefore, banks need to improve the efficiency of collateral appraisal, avoid risks encountered in the lending process.
1.2.4. Methods of lending to small and medium enterprises
1.2.4.1. According to the loan term
Based on term, loans to small and medium enterprises are divided into short-term loans and medium-long-term loans.
Short-Term Loans: Short-term loans are loans with a loan term of up to 12 months. The purpose of this type of loan is usually to finance the formation and purchase of current assets, meeting the working capital needs of SMEs in business activities. Types of short-term loans for small and medium-sized enterprises such as: Working capital loans, construction loans, loans under overdraft limits, etc. Medium-term and long-term loans: Medium-long-term lending is a type of loan in which the parties agree on a loan term of 1-5 years and more than 5 years. Types of medium and long-term loans to SMEs include: Loans for equipment and machinery procurement; Loans according to investment projects, loans according to credit lines…
1.2.4.2. According to the nature of guarantee
According to the secured nature, SME loans are of two main types: Loans secured by assets and loans unsecured by assets.
Loans secured by property: A type of loan based on security such as a mortgage or pledge, or must have a guarantee from a third party. For SME loans, the assets that businesses can pledge or mortgage are: Fixed assets owned by the business, machinery and equipment, goods in circulation, receivables, debt collection rights, securities or warranties, third party capital trusts.
Unsecured loan by property: A bank loan to an enterprise without any collateral, mortgage or third party guarantee on the property. In the case of SME loans, for businesses with good business plans and credit relationships with banks, banks can lend based on the business’s own reputation without a source of income. additional second debt. Each bank will have its own regulations on unsecured lending such as loan conditions, loan interest rates, maximum loan amount, lending process, etc.
In the case where SMEs are eligible for loans without collateral, but their credibility with the bank is not really guaranteed, the bank can agree with the borrower on having a third party, This third party must have creditworthiness and financial ability, commit in writing that it will repay the debt on behalf of the borrower in case the borrower fails to repay the bank’s debt.
In addition to the above lending forms, depending on the actual situation and capital use needs of the customer, the bank can apply many other forms of lending such as: lending according to the standby credit line, trust loans, syndicated loans, etc.
1.2.5. The role of small and medium-sized business lending
In the market economy, the existence and development of small and medium enterprises is an objective necessity and like other types of enterprises in the process of production and business activities, these enterprises also use use bank credit capital to meet the demand for capital shortage as well as to optimize the efficiency of their capital use. The lending activities of commercial banks to small and medium-sized enterprises play a very important role, it not only promotes the development of this economic sector, but through that, it has an impact on promoting the banking system. monetary policy reform, improve mechanisms and policies on credit, foreign exchange payment, etc.
1.2.5.1. For small and medium businesses
The bank’s SME lending activities help ensure the continuity of SME operations. In the market economy, businesses always need to improve their techniques, change product designs, innovate machinery and equipment to survive and develop in competition. In fact, no enterprise can guarantee 100% capital for production and business needs. The bank’s capital has created favorable conditions for businesses to invest in capital construction, purchase machinery and equipment to improve business methods. Thereby contributing to promoting and creating conditions for the continuous development of production and business.
The bank’s SME lending activities contribute to improving the efficiency of SME capital. When using bank loans, businesses must respect credit contracts, ensure to repay both principal and interest on time and must respect the terms of the contract even though the business is effective. or not. Therefore, it is required that SMEs, when they want to access the bank’s capital, must have a feasible production plan, not only recover enough capital, but also find ways to use capital effectively, quickly increase the turnover ratio. capital, ensuring that the profit rate must be greater than the bank’s interest rate to repay the debt and make a profit. In the process of lending, banks exercise control before, during and after disbursement, forcing businesses to use capital for the right purposes and effectively.
The bank’s SME lending activities contribute to the formation of the optimal capital structure for SMEs. Borrowed capital is a leverage tool for businesses to optimize the efficiency of capital use. For SMEs, due to limited capital, it is difficult to use their own capital for production because capital is limited and if used, the cost of capital will be high. accepted by the market. In order to achieve business efficiency, SMEs must have an optimal capital structure, the most reasonable structure is own capital and borrowed capital in order to maximize profits at the lowest average cost of capital.
In addition, lending activities of commercial banks contribute to helping SMEs concentrate production capital, improving competitiveness in the market.
1.2.5.2. For the bank
Lending activities including lending to help the Bank improve the efficiency of capital use because the bank’s activity is to borrow to lend, so when the capital mobilized by the bank reaches a high level, it cannot give loans. loans, causing excess, stagnation of capital, inefficient banks.
Lending to SMEs occupies a very important position in the bank’s business development strategy, because lending is a source of great profit for banks, although it also brings many risks to the bank. A bank with good lending activities will bring a lot of profit to the bank, helping the bank to have enough revenue to partially cover expenses such as capital mobilization costs, operating expenses of the bank, paid to employees. Besides, SME lending activities will help banks to strengthen the relationship between banks and SMEs, at the same time expand market share, improve their competitiveness in the market economy, create favorable conditions for the development of SMEs. favorable conditions for the bank to increase mobilized capital and develop in the future.
1.3. Promote lending activities for small and medium enterprises at commercial banks
1.3.1. The need to promote lending activities for small and medium enterprises at commercial banks
Promoting SME lending activities helps the bank’s mobilized capital to be used effectively, the bank earns profit from each customer’s loan. The bank has many conditions to expand lending activities as well as other banking services, while enhancing the bank’s competitiveness in the market. Therefore, promoting lending activities is necessary and an inevitable trend of commercial banks in the current period.
Lending activities of commercial banks are the main source of capital for SMEs today. In the process of business expansion, capital needs often arise and in order to better serve production and business activities and improve operational efficiency, enterprises must use borrowed capital because of the size of the owner’s equity. Today’s SMEs are often small. Thanks to loans from banks, SMEs have more capital to renew equipment, expand the scale of production and business activities, thereby improving the competitiveness of enterprises in the market. Bank loans also stimulate SMEs to do business more efficiently.