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Banks provide loans to small businesses with great caution
07 October 2014
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Loans for legal entities are still frozen at five large banks of Ukraine. There are several reasons, but the main ones are banks' unwillingness to communicate with small and medium-sized enterprises and the lack of resources for the financing of business projects.

Of course, the majority of large and medium-sized banks do not intend to completely give up taking loans, but it is not easy to get one.

In order to help entrepreneurs at least somehow, banks are reviewing the conditions of programs of financing. Now they give preference to short-term loans, providing customers with overdrafts, tranche credit lines and factoring. "The exception are customers from the agricultural sector, who have the more long-term seasonal funding needs," said FUIB's deputy chairman of the Board of Corporate Business, Oleksiy Volchkov.

Help for a short time

Overdraft remains the easiest and the fastest instrument of credit. It is available to all borrowers who have regular incomes to the current account opened in the same bank, where the overdraft agreement is concluded.
The amount of maximum overdraft limit depends on customer's average monthly turnover on the current account. On average, it is 30-40% during the last 3-6 months.
According to the experts, the overdraft amount depends on whether the bank takes into account the incomes to the current customer accounts in other banks when calculating the limit. By the way, if the amount of incomes to the current account changes, the bank can always recalculate the limit both downwards, and upwards.
You can expect a higher overdraft limit in the event that the borrower is willing to provide the bank with a substantial collateral – real estate, owner's personal deposit. The majority of banks ask to to provide real estate, either commercial or residential, as a collateral. At the same time, it is not necessary that the premises belong to the company. Less often banks are willing to accept goods for sale as a collateral.

Do you need more?

Banks impose higher requirements for borrowers who want to take a loan in order to replenish operating capital. First of all, it refers to the financial position of the potential customer. «It is crucial for an enterprise to prove its financial reliability, prospects of activity and the ability to make payments on the loan in due time. The activity of the enterprise should generate a sufficient cash flow in order to service the loan at 21-24% per annum," marked Oleksiy Volchkov.

Presence of liquid collateral is a mandatory condition. "Not less than 70% of the loan must be secured with a solid liquid collateral," specifies Mr. Volchkov. Real estate is considered to be the type of collateral with the most priority. However banks also take into account the existence of transport, goods for sale, machinery and equipment.
Loans for the replenishment of operating capital are more often given for a period of one year, and less often for two or three years. The interest rate in this case equals 21-25% per annum. The loan amount for the enterprises of small and medium-sized businesses may be from 30 to 500 thousand UAH, depending on the estimated value of the collateral and the financial indicators of the company. You will also have to spend money on a one-time commission on the provision of funds (from 1% to 3%) before receiving the loan.
List of commissions charged by the bank is quite diverse. In addition, the customer will have to take the expenses for the assessment, insurance and notarization of the collateral.

Working capital of the company can be replenished both through credit lines, and through factoring, use of promissory notes and guarantees. But such instruments are usually more often used by the enterprises of medium and larger business.

You can read a full version of the article here.


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