Banks are hesitant to provide unsecured loans to small and medium-sized businesses, being unsure of their ability to repay. (Photo: VNA)

At numerous conferences on lending to businesses, experts have reiterated that it is very important for SMEs to get bank loans.

In the country, 85-90% of enterprises are small- or micro-sized and have great difficulty getting credit, with only 40% managing to do so.

Banks are wary about lending to SMEs and their ability to repay.

Tran Trung Long, from Ho Chi Minh City's Tan Binh district, the owner of a coffee shop, said he wanted to expand his business but could not get a bank loan since he had no assets to mortgage. He also needed to furnish business plans, which he lacked.

As a result, he was forced to borrow from other sources at high interest rates.

Small businesses like his are caught in a vicious cycle: they are too small for banks to lend to but cannot get bigger without resources.

According to Nguyen Anh Tuan, Director of Khanh Trang Seafood Processing Company, after mortgaging all assets to sustain their operations, the only recourse for SMEs is to get unsecured loans, but they are often inaccessible because of procedures and documents that are hard to fulfil.

On the other hand, Nguyen Duc Lenh, Deputy Director of the State Bank of Vietnam’s HCM City Branch, pointed out that banks had to ensure compliance with credit and other regulations to mitigate risks of bad debts, and many small businesses did not qualify.

But experts wanted banks to revamp lending terms to provide long- and medium-term unsecured loans to SMEs, improve their risk management mechanisms and lower the bar for unsecured loans, especially newly established businesses.

SMEs could merge to expand their size and reputation to be able to borrow or seek other sources of funding such as initial public offerings on the stock market, they added.