News

(Article in People’s Army Newspaper issued on November 9, 2024)

Traditionally, when seeking capital for purchasing machinery and equipment, large enterprises often turn to commercial banks for loans and financing. However, small and medium-sized enterprises (SMEs) face numerous challenges in accessing bank loans, primarily due to a lack of collateral. Therefore, opting for financing through leasing companies is a viable alternative.

Machines, equipment and vehicles as Collateral Required

According to Ms. Tran Thi Thanh Tam, Director of the SME Support Center at the Vietnam Chamber of Commerce and Industry (VCCI), the government has enacted numerous policies to support businesses in overcoming difficulties. The VCCI has also undertaken various activities to assist enterprises in accessing diverse capital sources. VCCI surveys reveal that one of the most significant challenges faced by enterprises, particularly SMEs, is accessing capital and markets.

For instance, some SMEs in the garment industry have a constant need for production capital. However, the credit limits provided by commercial banks to these enterprises are primarily based on collateral, often falling short of actual requirements. Furthermore, the bank loan application process can be lengthy and cumbersome, affecting the production and business timeline. This is especially critical during peak seasons when the garment industry requires substantial capital for processing and exporting orders. Given that SMEs have already used up their collateral for bank loan limits, seeking additional capital sources outside of banks is imperative.

A BSL officer is consulting a customer on company’s services (Image: Thảo Nguyên)

The emergence of financial leasing meets this requirement. Financial leasing is a form of medium to long-term credit suitable for financing the purchase of machinery, equipment, and transportation vehicles for production and business operations among variety of financial options that leasing provides. Under this arrangement, a leasing company purchases the assets from the supplier as per the enterprise’s request and selection. The leasing company then leases the asset to enterprises for production and business use. Monthly, the enterprise makes periodic lease payments, which include both principal and interest on a declining balance. Upon lease termination, the enterprises have an option to tale the ownership or return leases assets to leasing companies.

In the conversation, Ms. Nguyen Thi Tho, Chief Accountant of Thanh Nghia Limited Liability Company (operating in the garment and textile industry in Hoai Duc District, Hanoi), shared: “Upon learning about leasing company, we found it to be an excellent fit, as it does not require full collateral, a common challenge faced by SMEs. Engaging with this financing channel, we were also surprised by the leasing company’s efficient guidance and support in completing the procedures. By utilizing leases to purchase assets, such as machinery, equipment, and production lines, we were quickly granted credit, facilitating asset investment and business expansion. Moreover, these financial leasing packages offered favorable conditions, including attractive interest rates, high financing ratios, and exceptional flexibility to meet various credit needs. Additionally, since financial leasing does not require full collateral, allowing us to combine both sources for a stronger financial foundation.”

Sharing a similar sentiment, Mr. Nguyen Thanh Son, Director of Science – Technology Printing Joint Stock Company, stated: “Our industry is characterized by the extensive use of machinery and equipment. Accessing capital for investment and reinvestment is a constant challenge for our company. Bank loan procedures can be lengthy and cumbersome, affecting the production and business timeline. It is not easy for banks to accept machinery and equipment as collateral (or if they do, the valuation is often very low).”

Through recommendations from friends, Mr. Son explored leasing companies and chose BSL as his partner. Thanks to the investment in a roll printing machine, BSL provided 80% disbursement of the asset’s value, facilitating easier capital mobilization for the company. According to Mr. Son, the attractive competitive interest rate, high financing ratio, quick and standardized procedures, flexible implementation, and time optimization have significantly benefited the company’s operations. With the timely financial support, Science – Technology Printing Joint Stock Company has now expanded its roll printing production line at a new location, with a total investment of up to 2 million USD.

Combining diverse funding sources

Mr. Hoang Van Phuc, Deputy CEO of BSL, analyzed: “One of the benefits of financial leasing that helps SMEs overcome difficulties in accessing capital is that it does not require full collateral. In addition, leased assets such as machinery and equipment often have higher financing ratios compared to bank loans; leasing procedures are simple and convenient. With these benefits, financial leasing is considered an effective capital financing channel for businesses, especially SMEs. Moreover, for businesses with assets and efficient operations but lacking capital after exceeding bank credit limits, the “Sale and Lease-back” form offered by leasing companies could be an optimal solution.”

Financial and banking experts believe that to overcome difficulties related to capital access, businesses need to regularly update themselves on government’s support policies and potential funding sources beyond bank loans. Additionally, using the enterprise’s own capital to diversify medium-term and long-term capital is crucial. Furthermore, combining credit from banks and capital from leasing companies will provide businesses with a solid financial foundation, creating more opportunities for investment and business expansion. Enterprises can flexibly use leased capital (medium-term and long-term) for production equipment and bank capital (short-term) for working capital needs, business operations, and investment in land and factories for new projects.

Financial leasing is considered an effective capital support channel for small and medium enterprises (Image: Thảo Nguyên)

Dr. Can Van Luc, Chief Economist of Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV), and a member of the National Monetary and Fiscal Policy Advisory Board, analyzed: “Domestic enterprises, especially SMEs, have not yet mobilized and effectively utilized financing channels from the securities market, non-bank credit institutions, credit guarantee funds, SME development funds, and many other channels. There are currently 16 finance companies, 10 leasing companies, nearly 1,200 people’s credit funds, and 4 macro financial institutions in the market, but their operating scale is still small.”

To increase capital for SMEs, Dr. Can Van Luc proposed: “For the authority, it is necessary to perfect the legal framework and policies for the operation of non-bank credit institutions (especially leasing, supply chain financing…); promote financial education for businesses; enhance and develop the efficiency of the stock market, corporate bonds, investment funds, and SME development funds. For enterprises themselves, they need to enhance their competitiveness to meet the standards for participating in supply chains and value chains; strictly comply with financial and accounting laws to improve governance and increase transparency; diversify capital sources; pursue green transformation; digital transformation; and strive to be listed and issue securities.”