These are the main documents, demanded by banks, but representative of
credit department of the bank may require extra documents, depending upon
financed project (Sahauyeva, 2001).
B. Difficulties with preparing documents for receiving a loan.
Since half of the year 2000 banks simplified scheme for giving credits.
Until year 2000 the main problem in preparing documents in order to receive
a credit was business-plan, but now, after simplifying scheme, the main
problem became – preparing annual financial statements, because banks
intensify requirements for financial position and accounting documents. Why
did they intensify? Now the majority of small enterprises and not only
small conducts double accounting - one accounting for tax purposes and
another for presentation to banks and investors. In financial statement for
tax purposes, for example, the company decreases its revenue or has losses,
in order to pay fewer taxes, and if this company will bring the same
financial statements to the bank to borrow money, most probably the bank
will deny for the loan.
Nowadays there are many organizations, which helps entrepreneurs to make up
different kinds of documents like financial statements, pledge documents,
which are demanded in banks, but there is absolute no guaranty that with
this financial statements you will receive a credit, simultaneously
services of these firms rather high.
In our interview, our respondent – Sahauyeva Zhanar, chief accountant of
“Oasis”, said, that there was more difficulties with annual financial
statements, than with other documents. Representative of the credit
department of Bank Centercredit demanded annual financial statement for the
last two years, which was given to the Tax Committee of Republic of
Kazakhstan. As was written before, some small companies conduct double-
accounting, and banks know about this, that is why Bank Centercredit have
demanded financial statements for tax purposes. By the way, “Oasis” company
did not addressed to the companies that help enterprises to prepare
necessary documents to gain a credit, but they received a credit. (op.cit).
This diagram shows in what level each factor influence on decision of the
bank, when it is giving a credit to the enterprise. As we can see, the most
important is financial report – 31%, that is why it is very important for
the enterprise to prepare it in a best way. After financial statement of
the company, follow market, which takes 16%, this means information about
customers, suppliers and enterprises’ borrowers, and lenders. The next is
pledge –15%, we will consider it in more details later.
(Source of the diagram: Osnovniye prinzipi kreditovaniya MP, 2001).
Another problem is getting sanction for realization a project. This is due
to difficulties with receiving confirmation in different state
organizations. There are several supervising organs whose corroboration you
have to receive, but they are varying depending on the project itself.
. Ministry of Ecology and Natural Resources regional representations
. Sanitary-epidemical services
. State Supervision of architecture and construction
. Standardization and certification organs
. Fire services
. Custom services (Dauanov I., 2000)
Mainly, because of imperfectness of our organs, and especially due to
corruption, getting through the expertise takes 6 or more months.
C. Meeting with representative of credit department.
No credit can be given until a meeting of banker and entrepreneur. During
this meeting borrower should show and tell about his business, how it
works, in short, he should do the best to present his business. Banker will
ask him questions about financial statements of the company, about revenues
and losses, so borrower should be prepared for questions like
this. Credit interview is often held in bank or in enterprise office. By
the way, entrepreneur should always offer to visit his office, and not only
because owner is proud to present his business, but also to present
additional information about his business like first appearance of the
office, other rooms and buildings; site, neatness of the office; show
employees, equipment. This information will improve impression of
representative about business (Sahauyeva, 2001). Representative in his turn
has to be in connection with borrower, keep abreast with the needs of the
company, should offer bank in order to solve financial problems of the
enterprise, and should offer to submit application for a loan. Thus the
representative has to understand how business works, risks connected with
making deals with this company, keep up that everything is legal, and look
after how borrower spend credit (Osnovniye prinzcipi kreditovaniya MPS,
2001).
From the interview with Sahauyeva Zhanar we learned that “Oasis” company
also prepared to the meeting with representative of credit department.
Executor looked through office rooms, presence of the basic, and turnaround
means, in general he was satisfied with total condition of the business
(Sahauyeva, 2001).
D. Pledge.
1. Required pledge.
Banks have to ensure their credits, which are given to entrepreneurs in
case of bankruptcy. Thus, all banks demand pledge maintenance from
borrowers. Banks accept as a pledge property, guaranties of other legal
persons, and other types of pledges. For instance, European Bank of
Reconstruction and Development accept real estate, motor vehicles, personal
property, enterprises’ property and goods, which are in business
(Yevropeyskiy bank rekonstrukzii I razvitiya, 2001). In our considered
“Oasis” company, the pledges were real estate of the founders and commodity
stocks. Estimated value of the commodity stocks was equal to 20 mln. tenge.
2. Difficulties of enterprises with providing a pledge.
It is very difficult to receive a credit on ordinary terms, offered by
banks. This is due to most enterprises are not able to provide a pledge
required by banks or their pledge is not liquid enough.
There are several problems, which are arising with providing a pledge to
bank. The most important is illiquidity of the pledge that if offered by
enterprises. Banks accept movable and immovable property, which is owned
either by enterprise or entrepreneur, guaranties of other legal persons,
marketable securities (Kreditovaniye, 2001). Another important thing is
that banks usually underestimate cost of the pledge. And the last thing is
registration of documents confirmed your ownership of the pledge. Banks,
when they are giving out a credit, demand these last two items. Thus, if
the estimation of the pledge that is carried out by experts of the bank is
free of charge, then confirmation of ownership is carried out at the
expense of the businessman. (Dauranov I., 2000).
As we already mentioned, the pledge of “Oasis” company to the bank were
real estate and commodity stocks. But firstly, “Oasis” company offered only
real estate as a pledge, but in bank said that this is not enough, and then
company added commodity stocks (Sahauyeva, 2001). Most probably, that bank
underestimated the cost of real estate, and then demanded more property in
order to ensure its money in a best way. It is well, that “Oasis” company
could offer commodity stocks, but if there were another company with not
very big amount of assets, we think, that bank would deny in borrowing
money, because there are so many companies that needs money to increase
their turnover or to buy some equipment, that banks could just choose the
biggest company with a big amount of assets. This is support the idea that
banks are more pleased to work with big companies and with big money,
rather than with small enterprises.
Thus, it is very difficult to receive a credit. You may have problems with
providing a liquid pledge, demanding by banks. Even if your business goes
well and profitable, your company could just have not enough assets to
offer it to the banks, moreover, you are asking a loan to buy an equipment,
to increase your assets, but bank gives loans only to those, who already
developed. Thus, there is a situation, that rich become richer and poor
become poorer.
E. Interest Rates and Repayment.
Now, let us consider interest rates, which enterprises have to pay as a
payment to the banks for lending money. For example, interest rates of NSBK
are determined in dependence with concrete case and project:
. On credits in national currency – from 24%
. On credits in national currency with fixation of currency equivalent
–from 17 %
. On credits in foreign currency – from 17% (Kreditovaniye, 2001).
These interest rates looks pretty high, but there are a lot of programs on
supporting small business, and many banks support this policies and offer
credits to enterprise on less interest rates. For instance, Kazkommertz
Bank offer 1% on foreign currency credits (Kreditovaniye (kkb), 2001). For
example, our case company “Oasis” took credit under program of supporting
small business and took a credit in Bank Centercredit in national currency
under 10%.
The scheme of repayment of the credit and interest is usually in most banks
on personal scheme. “Oasis” company’s payment schedule also was personally
scheduled. They took credit on 9 months and made monthly payments: part of
the credit itself and part of interest rate. In first months repayments
interests charged on low rate, but closer to the 9th month interest grew.
Summary.
Thus, we can conclude, that entrepreneur has to prepare many documents,
prepare to meeting with executive of credit department of the bank, have a
liquid pledge, and have enough assets to give it as a pledge in order to be
able to satisfy the bank’s requirements. There are so high interest rates,
but still there are many programs on supporting small business lending and
enterprises have to discover first, which bank is more suitable and then go
