Banks do not provide Russian small business with loans

Banks can be business-friendly for stable, reliable enterprises, they do not deal with beginners

It was generally believed in Russia in the beginning of the 1990s, when the business industry was at its earliest stage, that entrepreneurs had to find so-called start-up money themselves. Credit institutions were not considered any help at this point.

Russian banks are gradually moving closer to small business nowadays. Their work with small enterprises corresponds to the diversification principle. A bank stops being a hostage to one or several large clients. Another positive side of small business is that large enterprises, their programs and projects have already been distributed in the bank system. Small business is still a vacant space in Russia: small and medium-sized banks may easily fit in there. There are reportedly 870,000 small enterprises in Russia nowadays; the small business industry employs 17 percent of the country's population.

Another positive argument of small business is the profit: investments in this kind of business return more profit in comparison with the same index in large business. Small businessmen do their best to save money on expenses on account of quite modest turnovers, which can not make a living on the net profit of 5-10 percent, which is typical for large business. In case of successful promotion, investments may double or even triple.

It goes without saying that a high percentage of income is accompanied with risks. It is noteworthy that those people, who decide to launch their own businesses, turn out to be either inadequate individuals or simply swindlers. Furthermore, there is a large number of administrative obstacles in Russia, which eventually ruin businessmen's humble attempts to rise to their feet.

Association of regional banks “Russia” has recently conducted an opinion poll, which was devoted to the issue of credits for small business. Questions were asked to specialists of 85 banks in 36 Russian regions. The majority of banks (91.6 percent) said that the financial state of things at a small company is the most important detail, to which banks pay attention when they dwell upon a loan for a small enterprise. 81.9 percent of banks pointed out a reliable credit guarantee at this point, whereas 75 percent said that a small company is supposed to have a credit history.

The results of the opinion poll say that banks do not usually give start-up loans to new small companies. Therefore, banks do not hurry to develop the small business industry in Russia at their own expense. Banks can be friendly if they see that a company is stable, if it is not the first time, when a businessman raises a loan. As a rule, banks need to know that a person has already raised loans for his company and paid them back. The financial security has to be solid in this case.

Russian bankers acknowledge that they give loans on security of such values as technological equipment (97.2 percent of banks) and ready-made production (68 percent). A large percentage of credits is secured with real estate – 83.3 percent. It goes without saying that such credits are meant for stable, reliable businesses, not for beginners. Usually, banks require six months of successful activity of an enterprise.

The interest rate on credits for small enterprises is 1.5 times bigger in comparison with the average annual index on credits for non-financial organizations in Russia. The Business newspaper published the following statistics: 19.3% vs. 11.95% per annum in the first half-year of 2004.

It is worth mentioning that banks compensate high rates with a certain shortening of the decision-making process. It takes a bank the average of six days (the minimum term is one or three days, the maximum is two months) to make a credit decision for a small company.

Analysts of the “Russia” association regretfully concluded that the participation of the state on the market of small business crediting is extremely low: the state guarantees less than 1.5 percent of loans. Specialists, however, believe that it is the state that should create conditions for crediting small business by means of establishing a system of guarantees.

It will be impossible for an enterprise to raise a loan in a bank, if it conducts an ecologically dangerous production, if it is a tobacco or an alcohol-making company, if it deals with financial securities, or if a company is involved in the gambling or erotic industry.

Sergei Malinin