The SME Corporation called the main reasons for refusals in loans to small businesses

Approximately in 50% of cases, banks reject applications of small and medium-sized businesses for loans, in some industries the percentage of refusals reaches 70%, the CEO of the Corporation told Vedomosti SME (KMSP) Alexander Isaevich. According to him, the failure rate is much higher in micro-businesses and lower in medium-sized companies. At the same time, banks do not officially disclose this indicator, he recalled.

Credit organizations refuse to receive a loan for business for four reasons, Isaevich noted in his Telegram channel.

The first is the period of doing business, that is, how long the company has been on the market. A business “at the start” can still be granted a loan, but the conditions will be more stringent than if a company with more solid experience requested it.

The second reason is related to the financial condition of the company. A potential borrower should not have tax debts, and he also needs to have a good credit history. Entrepreneurs sometimes minimize their chances of receiving funds by providing false documents, Isaevich said. This is always a bad way, as this information is checked by the security service, the general director of KMSP emphasized. In this case, the company runs the risk of being blacklisted not only by one credit institution, but by the entire banking system.

The third argument against the borrower may be his personal inattention. Entrepreneurs do not always carefully read the contract or do not pay attention to the details – the amount, term, security, and what is written in “fine print,” Isaevich points out. Banks often offer additional services, such as insurance or collateral. “If you agree to them, the bank usually lowers the interest rate. However, it is worth evaluating what is more profitable for you – paying for additional services or servicing a loan at a standard rate, ”he points out.

The fourth reason for refusal may be the company’s high debt load – that is, the sum of all monthly payments on all loans. According to KMSP, an incorrectly calculated credit burden can provoke the transfer of pledged property in favor of the bank or create a “vicious circle” when an entrepreneur has to take out a new loan to pay off an existing one.

The mechanism of umbrella guarantees of KMSP and guarantees of regional guarantee organizations is aimed at reducing the number of failures, Isaevich recalled. This tool was launched at the end of 2021 and allows banks to lend to even more risky entrepreneurs by reducing losses and sharing risks. According to KMSP, this mechanism provided loans for 260 billion rubles. companies that previously had no access to credit at all. Also, the mechanism enables banks to reduce rates for borrowers by 1-2%, Isaevich added.

“We are now working with the Bank of Russia as part of the implementation of the road map of the Bank of Russia to assign a PSE status to the corporation, which will allow us to send twice as many credit funds to the market,” he said.

According to the Central Bank, in April 2023, the total volume of loans for small and medium-sized enterprises increased by 43.8% compared to April 2022. At the same time, the indicator decreased by 6.8% compared to the previous month. The average loan size for SMEs is significantly less than for large borrowers – 4.8 million versus 254.5 million rubles, follows from the April data of the Central Bank.

The key reasons for refusals to issue loans to small businesses at Sberbank are the negative business reputation of the client and the poor quality of fulfillment of obligations to counterparties, poor financial position, and the lack of collateral required for the loan, a bank representative told Vedomosti.

“Rosbank does not have any “hidden” commissions, interest for issuing a loan, etc. Our bank works as openly as possible with borrowers, providing them with all the information,” said Timur Makhsidov, head of the regional sales department of Rosbank, agreeing with all of the above reasons except for the third paragraph.

The number of refusals always increases during periods of increasing risks – macroeconomic, political, foreign economic, said Deputy Minister of Economic Development Tatyana Ilyushnikova in an interview with Vedomosti in March 2023. According to her, this year the number of refusals in lending could increase due to increased risks, related to sanctions. The level of issuance was also influenced by factors such as mobilization, covid and the introduction of remote work.

In 2022, 2.2 million loans worth 11.4 trillion rubles were provided to SMEs, Ilyushnikova noted. Of these, almost 2 trillion rubles. provided preferential lending programs of the Ministry of Economic Development, KMSP and the Bank of Russia.

In the first place among the main reasons for refusing to lend to small businesses is the lack of collateral, said Elena Dybova, vice president of the Chamber of Commerce and Industry. “Given that banks usually value real estate, at best, for half the price, or even for a third, and they practically do not accept machinery and equipment, the issue of security is much more complicated,” she stressed.

The business community needs a detailed explanation of the reasons why companies may not be approved for a loan, Dybova emphasized: “Banks often refuse entrepreneurs without substantiating or explaining the reason, this is a huge problem, more than 50% of entrepreneurs face it.”

Lack of credit history is one of the very important reasons for refusal, Anton Danilov-Danilyan, Vice President of Business Russia, believes. The expert noted that the ability to obtain a loan does not depend on the age of the business, but on the availability of collateral and solvency.

“In countries where the tradition of starting a business is associated with 3F (“friends, family, fools” is a variant of the first stage of raising funds for a startup, where the source of funding is family members, friends or “fools” (not experienced investors). – Vedomosti ”), people do not count on soft loans – they are trying to make sure that the business is promising. We have not yet formed large family capitals, therefore, it is not always possible to find a person who will fall in love with your idea and give money, ”Danilov-Danilyan explained. To solve lending problems, it is necessary to create additional guarantee resources that banks could rely on when issuing loans to young companies that do not have, for example, credit histories or collateral, the expert believes.

Anastasia Boyko took part in the preparation of the material