How to get a small business loan

Among the problems and needs of entrepreneurs, difficulties with external financing are invariably in the first place. Lenders and investors consider investing in “kids” highly risky and finance such enterprises with caution. It is known that lending requires collateral, collateral, which is usually not enough for small businesses, so even profitable enterprises can face refusals from banks.

The state sets the task of raising the share of small and medium-sized businesses in the country’s GDP to 40% and is taking steps to develop this sector of the economy. To increase the availability of loans for SMEs, a guarantee support mechanism has been launched in the country.

National guarantee system

The SME Development Corporation has been established at the federal level.

Each region has a guarantee fund. Coordinates of regional funds can be found on the SME Corporation website.

The largest capital – 10 billion rubles – belongs to the Moscow Small Business Lending Assistance Fund (Moscow Guarantee Fund), which was established by the Government of Moscow and operates as a state support organization subordinate to the Department of Entrepreneurship and Innovative Development of the City of Moscow

With the support of the Moscow Fund, entrepreneurs have already received over 140 billion rubles from banks.

Who can get warranty support and how

The Moscow Guarantee Fund acts as a guarantor for small and medium enterprises – SMEs (these include companies with an annual turnover of up to 2 billion rubles) registered in Moscow, without debts on taxes and fees, not working with excisable goods, gambling and minerals, with positive financial results and business reputation.

Guarantees cover up to 70% of the attracted financing, but not more than 100 million rubles. In other regional funds, the amount of the maximum guarantee is lower, up to 25 million rubles.

The average amount of one guarantee is close to 20 million rubles.

Entrepreneurs can apply for a guarantee through partner banks, as well as directly to the Fund or Business Service Centers.

More than 70 lenders cooperate with the Fund, the largest volume of loans to SMEs under guarantees traditionally falls on the largest banks: Sberbank, Promsvyazbank, VTB, Alfa-Bank, Otkritie.

Types of guarantees and conditions:

Loan guarantee  up to 70%,no more than 100 million rubles0.75%
Bank guarantee guarantee0.75%
Leasing guarantee0.5-1%
Factoring guarantee0.5%
Letter of credit guarantee 0.75%

Scheme of the Fund’s work:

Step 1 – The Entrepreneur independently applies to any Lender-partner of the Fund and submits documents at the request of the Lender. The list of creditor partners is updated on the Fund’s website.

Step 2 – The Lender makes a decision on the readiness to finance the Entrepreneur under the guarantee of the Fund, the Lender, with the consent of the Entrepreneur, submits an application for a guarantee to the Fund.

Step 3 – The Fund considers the application within 3 working days. If a positive decision is made, the Fund, the Lender and the Entrepreneur sign a 3-party surety agreement, after which the Entrepreneur receives financing.

With a guarantee, loans are cheaper and longer

The weighted average rate of a loan guaranteed by the fund at the beginning of 2019 was 11.3%, for comparison, at the end of 2018 it was 11.7%, at the end of 2017 – 13.3%.

It is important that with the guarantees of the Fund for SMEs, financing conditions are better than the market average and for longer periods, so short-term transactions up to 1 year accounted for only 12%, 66% of guarantees are valid for a period of 1 to 3 years, 12% for 3-5 years and 8% for more than 5 years.

Who are the clients of the fund

57% of the current guarantee portfolio is occupied by small and micro companies, respectively 57% and 34%, and only 9% by medium-sized enterprises.

The sectoral structure of guarantees generally corresponds to the structure of the SME sector itself: slightly more than half (54%) is trade. About a third of 31% of the volume of guarantees falls on industries that are significant for the city’s economy, such as manufacturing, construction, transport, healthcare, and various services and other areas also make up a significant part.   

For what purposes are companies borrowed with a guarantee?

In the vast majority of transactions, enterprises need the help of a fund for lending to replenish working capital – 75% of the volume, a significant share falls on investments – 10%, among other purposes, the execution of state orders, refinancing, and other needs.

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