2014-08-27

SMEs Wonder Not How to Live, But How To Die As Borrowing Costs Spike

Credit remains tight for SMEs. One borrower says their interest costs will climb from 6.6% to 8%, enough to cut 1% off their 10% profit margin. Owners describe it as plucking the feathers from the goose as banks raise interest rates and fees in a search for profit.

One SME says the bank told him if he wants to borrow ¥8 million, he needs to first deposit ¥8 million into a savings account. He says in order to borrow ¥1, SMEs have to pay ¥0.16 in costs.

Another SME will borrow ¥150 million at 12%, or ¥18 million in annual interest costs. However, with fees to trust intermediaries, costs rise to ¥33 million annually, or 22%.

Banks aren't making loans with no collateral, so borrowers using credit guarantee firms see their costs rise 2% to 5%. So probably not good that Credit Guarantee Firms Go Down Like Dominoes.

From 21st Century Business Herald:
想贷款先存款 借一元钱有多“贵”
"Tight money", "your money" has been plagued by a number of much-needed financing for SMEs. Despite repeated orders to relieve the central high cost of corporate finance problems, but in practice, the right to speak weaker SMEs still have to face the "get" and "high price" two-tier financial problems.

Banks and other financial institutions to loan funds "goose plucking", leading to the real economy with money, "both expensive and difficult." This reporter recently interviewed a number of business owners, they said, now is not considering "how to live" issue, but "how to die" and whether "life after death" issue.

Then, "to borrow the cost of" how high?

Shenzhen Hirota decorative Group Finance Director 田延平 to reporters, the company's borrowing costs from last year's 6 to 6.6 percent and now suddenly rose to around 8%. "Our new addition this year is estimated to account for interest on the company's net profit last year, 10 percent, meaning that this year's cost of funds is only necessary to eat 10% of the profits."

田延平 said his company total annual funding of about 2 billion yuan, channels, including bank credit, short trading, bonds, etc., of which more than 40% of bank loans. "This year, our borrowing costs suddenly go up by 30%, the interest paid by the company for 90 million yuan last year, this year is expected at between 120 million to 150 million yuan."

"Loan rates have been floating higher, 12 percent annualized interest rate is already very common, enterprise funds a lot of pressure, I feel life more difficult this year." General manager of Zhejiang, a medium-sized clothing company, told reporters that this phenomenon is common in SMEs.

In addition to lending rates climbing, "goose plucking," the phenomenon is more widespread. Such as guarantee fees, advisory fees and all kinds of "money" are increasing the cost of loans for SMEs.

A small manufacturing business executives gave reporters just a breakdown: The company this year to apply for a bank loan of $ 8 million, "because of the way to take a mortgage loan, so let a credit guarantee company peel off 2 percent, or 160,000; when applying for credit, account manager informed me, now tight credit lines, to 8 million yuan loan, you need to give 8 million yuan of bank deposits that is, I need to start with. other channels temporarily borrow 8 million yuan in the bank, and then convert the deposit into a bank acceptances, I would pay 4.8% of the discounted fee will redeem it and then also temporary borrowing After some bargaining, and ultimately give us a 50% discount, 8 million yuan loan, deposit 4 million, discounted cost 192,000 yuan. Fortunately, the line of credit at any rate is down, the loan interest rate of 12%, the annual interest 960,000 yuan. Later, the bank told me that our financing costs have the low count. "Well afterwards, that is, small and medium enterprises in order to lend a dollar from the bank, at least to pay 0.16 yuan, or even higher.

A medium-sized building materials enterprises in Hebei total borrowing 150 million yuan, the borrowing rate 12% per year, in theory, should also interest in 18 million yuan. However, the company's chairman Yang said, "plus all kinds of commissioned intermediary costs, on average, more than 33 million yuan to repay interest annually, costs almost doubled."

Yang told reporters that the current mortgage loan financing is still based, no collateral is basically difficult loans. Therefore, the bank will generally require companies to find his security company guarantees to credit the money, frequently 2% to 5% of the guarantee fee to make the already overburdened businesses more "difficult."

Qingdao City, an annual export volume of over 20 million U.S. dollars of foreign trade business executives complained that due to small scale enterprises, to the banks for loans always make things difficult. "Our company's annual loan volume of 500 million to 600 million, will be required to pay the financial costs of a variety of names, not the same every year, it is called also .2011 called 'consultancy', probably to pay 100,000 yuan ; 2012 because of our good repayment record, only paid 50,000 yuan of 'consultancy fee', in fact, the bank did not give us any advice or consultancy services, just clever stand eyesight money only, do not pay do not give credit. 2013 we applied for a loan of 6 million yuan, but the actual arrival only 5.4 million yuan, and the remaining 600,000 yuan to buy financial forms were trapped. "the official said with exasperation.

"At present, Shanghai area small businesses and personal business loan interest rate of 18%." Bank of Communications chief economist Lian Ping said, another consignment fees, consulting fees, consultant fees, as well as 3% fee for each link, and requires the month from debt service, and ultimately the interest rate is much higher than 20%.

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