Vietnam banks to slam doors on home-based business owners
In this article (5)
Home-based businesses will soon find it, not just increasingly difficult, but impossible to find a bank loan. The central bank has tightened lending criteria for household and other unregistered businesses, meaning they will not be eligible for bank loans.
With the change coming into effect from March 15, a housewife who wants to earn some extra money by selling handmade soap will have to apply for a consumer loan rather than a commercial loan from the bank.
A consumer loan is more expensive than a business loan, which will later reflect in the costs of operating her business, limiting revenue growth and profitability.
Vietnam currently has 5 million unregistered home-based businesses, said Vu Tien Loc, chairman of the Vietnam Chamber of Commerce and Industry (VCCI). However, the country plans to relax the business environment so that by 2020 it will have one million private businesses, most of which will be home-based businesses that have converted to legal entities.
Loc said because some regulatory requirements, mostly involving administrative procedures and tax policies, are expensive and time-consuming, the vast majority of local businesses choose to remain as home-based micro businesses.
Also according to the VCCI, about 70 percent of small business owners, including home-based ones, that apply for a bank loan get rejected, even though they are critical to job creation in Vietnam, employing 52 percent of the private sector workforce.
Questions & Answers
Q.Which types of businesses will no longer be eligible for bank loans from March 15?
Which types of businesses will no longer be eligible for bank loans from March 15?
Household and other unregistered businesses will soon find it impossible to secure bank loans. The central bank has tightened its lending criteria, specifically excluding these entities from eligibility for commercial financing.
Q.What is the primary difference in cost between a consumer loan and a business loan for home-based entrepreneurs?
What is the primary difference in cost between a consumer loan and a business loan for home-based entrepreneurs?
A consumer loan is more expensive than a business loan. This higher cost will negatively impact the operating expenses of home-based businesses, thereby limiting their potential for revenue growth and overall profitability.
Q.How many home-based businesses currently operate in Vietnam?
How many home-based businesses currently operate in Vietnam?
Vietnam currently has five million unregistered home-based businesses, according to Vu Tien Loc, chairman of the Vietnam Chamber of Commerce and Industry (VCCI). These businesses are crucial for job creation in the country.
Q.What is the main reason many local businesses choose to remain as unregistered micro businesses?
What is the main reason many local businesses choose to remain as unregistered micro businesses?
Many businesses choose to remain unregistered because regulatory requirements, particularly administrative procedures and tax policies, are expensive and time-consuming. This discourages them from converting to legal entities.
Reader pulse
Impact of tightened lending?
16,433 votes so far