Permanent credit holidays for SMEs versus “long-term money”

There will be credit holidays for SMEs

A permanent mechanism of credit moratoriums for small and medium-sized enterprises (SMEs), as well as micro-businesses, could come into operation in Russia as early as this summer. The initiative to introduce them was taken at the beginning of the year by Russian President Vladimir Putin. The Head of State ordered the authorities to change the laws before June 1 so that “small businesses” could receive six-month vacations every five years and this would be guaranteed by the State. After the credit holiday, Putin clarified, credit history should not be damaged.

Credit holidays for small businesses under government programs were already introduced during the pandemic and after the start of the SVO. According to the Central Bank of the Russian Federation, in 2022 up to 75% of subjects who took advantage of the vacation were able to overcome the difficulties. To participate in them it was necessary to demonstrate a decrease in performance. Currently, to get vacations, a company must negotiate with banks, which do not always cooperate.

Permanent credit holidays will not be free, according to Izvestia. Unlike, for example, the mortgage loan holiday for the population, when frozen payments were postponed until the end of the term, the bank will charge additional interest throughout the holiday period for SMEs. Discussions on the conditions of vacations in the government are expected to last until early June, then the project will be discussed in the State Duma of the Russian Federation. The program was scheduled to launch on June 1, but apparently this will happen later. RB.RU contacted the Central Bank of the Russian Federation to ask at what stage the discussion on the credit holiday mechanism is.

Overdue debt of SMEs continues to grow

Credit moratoriums will support companies, because they are introduced at a difficult time; the Central Bank of the Russian Federation records an increase in overdue debts of SMEs, as of April 1, 77 thousand out of a total of 6.5 million companies have already been identified;

• According to the Central Bank of the Russian Federation, overdue debt of “medium-sized businesses” in Russia is growing along with rising interest rates. From January 1 to April 1, overdue debt of SMEs increased by 37 billion rubles, to 657 billion rubles, including another 0.6%, or 4 billion rubles, in the last month. In total, as of April 1, SMEs owed banks 13 trillion rubles. 132.1 thousand loans to SMEs were officially recognized as past due, 64.5% more than the previous year.

The growth of overdue debt is not critical; It is accompanied by a constant decrease in the share of SMEs in the total volume of overdue debts and an increase in the number of small and medium-sized businesses. According to experts, the indicators rather indicate the attempts of SMEs to develop in difficult conditions, introduce import substitution and resist sanctions, which requires additional support from the state.

The Moscow Small Business Loan Fund and the BusinessDrom analytical center published a report in Banking Review magazine linking the growth in the number of loans with the increase in business activity.

While the state develops preferential loans and provides guarantees in case of a shortage of guarantees, another measure will be credit holidays, experts believe.

Credit holiday – long money

As RB.RU explains Evgeniy Kondakov, consultant and owner of the company Megaset74, which is dedicated to food delivery, any state bonus helps small businesses survive. Many support programs are now emerging. For example, Evgeniy plans to sign a social contract; He knows that employers ask for support for young people. The state credit holiday will be another advantage because, according to Kondakov, it is about long-term money.

Kondakov believes that the frequency of credit holidays every five years is not so small, because in addition to them there are many programs that help and can be used at all times. For example, you can receive help to scale and open new locations, the consultant explains.

Owner of the online store of children’s clothing and footwear “Dinomama.Ru” Marina Pershikova He stated that his company prefers not to attract bank loans, but to borrow from individuals: the rate is lower, the conditions are simpler. The businessman believes that the introduction of credit holidays is a good step, but the conditions are not favorable and the frequency of receipt is not sufficient.

“A loan received at a good rate can be extended. This can be even more cost-effective than buying a new one. Another issue is that lately we have had atypical situations more than once every five years: 2018, 2020, 2022. But they want to give vacations once every five years,” said the expert.

Pershikova says that in 2020, with the introduction of quarantine, banks gave companies the opportunity to restructure existing loans, but the offers did not seem profitable.

“At that moment we weighed everything, calculated it and decided no. I suppose that for the companies that at that time were left without any income, this was at least a help,” said the businessman.

As RB.RU explains founder of the promotion and analysis service for sellers “Anabar” Petr Markov, which has to work with small and medium-sized businesses, market suppliers (sellers), the vast majority of whom apply for loans to purchase goods. Sellers typically opt for consumer loans, but now also lend against assets as collateral. According to the expert, the possibility of taking a credit holiday is an undoubted advantage for sellers, especially when the full amount of the loan already needs to be repaid and all the money is on the goods.

“And the main difference from existing banking programs is the ability to enjoy a vacation, even if the bank does not cooperate,” Markov noted.

The ideal, Markov believes, would be to allow the seller to take credit holidays for all bank loans at once. The situation when a seller has several loans from different banks is quite common.

“Ideally, the seller himself would decide which loans he wants to take vacations for and which he doesn’t,” Markov said. But the terms of the program, which is being discussed by the Central Bank of the Russian Federation, provide for a vacation only once every five years, and for a loan it is allowed to take a deferral of up to six months only once.

Markov stressed the importance of vacations not affecting credit history, because the sellers’ business is based on borrowed funds.

“Sellers do not use leverage once at the beginning, but all the time, and the inability to obtain loans in the future will be a big problem for the business,” the expert added.

Will my credit history stay clean?

According to the authorities’ plan, permanent credit moratoriums will not affect the borrower’s credit history, but banks justifiably recommend taking advantage of this type of state offers.

Vice Chairman of the Board of Customer Relations of SDM-Bank Vyacheslav Andryushkin believes that if a company needs these credit holidays, for example due to its seasonal activities, this can help several companies to cope with temporary difficulties and continue with their usual work. But of course, when banks make loans, they assess the possibility that such risks exist. The banker believes that for a company operating normally under planned conditions, the need for vacation should be neutralized by his financial policy.

“Seasonality is taken into account and financial resources are planned. And then this measure will not be necessary. At the same time, we do not see a definite need to introduce credit holidays now,” says Andriushkin.

The expert is confident that the convenience of credit holidays is evident in the event of force majeure circumstances. For example, as happened during the pandemic, when at the same time many companies were faced with the fact that their customers were not available. According to the banker, for various reasons, companies now go to the bank to request an extension or restructuring of loans, but these requests are few if the loan portfolio is of “sufficient quality.”

“According to current risk assessment principles, including those adopted at the legislative level, requests for restructuring or extension of loans require the bank to create reserves that compensate for possible losses. That is, in any case, the risk policy stipulates that such requests are due to not very positive trends in business and lead the bank to begin evaluating said restructured loan as more risky,” the expert warned.