Your company has a capital crunch. The logical solution is to borrow money from the bank, though modern economics virtually revolves around what the interest rates are. But gaining a loan in Slovakia is not that easy Small and medium size Slovak businesses have a difficult time finding capital. If the company is small enough, an entrepreneur can use his personal savings or those of family and friends for financing, but these sources are very limited. For most businesses, the only option is a bank.
To obtain credit from a bank, a small and medium size enterprise (SME) must survive a rigorous selection process. Before applying for the loan the company should prepare a detailed business plan.
In addition, further application forms must be filled out with more information, such as other sources of financing the project, financial obligations that the company might have, and the sources of collateral that the borrower can offer (with a recent appraisal of the value of the sources).
Interest rates vary from bank to bank and with time, so it is worth shopping around. According to the latest information in the Slovak business weekly Trend, the minimum short-term rates (less than one year) vary between 12 percent and 15.75 percent and minimum medium-term (one to four years) rates range between 13 percent and 16.5 percent. However, actual rates are usually higher than this based on the perceived risk of the loan.
Interest rates, however, are not the only variable in borrowing. The collateral required can vary considerably. According to Tatra Banka the following sources can be used for collateral: guarantees issued by local or foreign financial institutions, guarantees from local or foreign companies, deposits in the bank, high quality securities or first class real estate. One small manufacturing company in Hlohovec had to use its building and machinery, valued at 150 percent of the loan's value, as collateral for a loan it received from VÚB. Items purchased with the loan (i.e., land, buildings, machinery and sometimes inventory) can be used as collateral as well.
Another variable in the loan contract is how the payback is structured. For example, Tatra Banka offers a number of methods of paying back short-term loans, such as monthly principal and interest payments, quarterly principal and interest payments, monthly interest payments with principal due at maturity, or principal and interest due at maturity (though usually only if the loan is for 90 days or less). A Poľnobanka official also said that it can tailor the payment method to suit cycles in the borrower's business.
One obvious lesson in all this is that a business can improve its chances of getting credit and can get better terms if it can reduce the perceived risk in the minds of the bankers. The best way to do this is to have a solid track record of running a profitable business and of paying debts to creditors.
A good relationship with the bank always helps too. As an example, the Hlohovec manufacturing company received a second loan from VÚB with only an abbreviated business plan based on its existing relationship with the bank. The bank was willing to do this because they knew the company, its management and its business, and therefore, the loan was perceived as being less risky.
11. Sep 1996 at 0:00 | Jim Gladstone