Where can businesses obtain a loan if they do not have a big collateral? How can a new company win the trust of customers and investors? Why does a director of a state company need a Telegram channel? We interviewed Executive Director of the Moscow Guarantee Fund Anton Kuprinov.
– What does the Moscow Guarantee Fund do?
– The Fund for Small and Medium-Sized Business Lending Assistance helps companies in Moscow to secure loans. Not every profit-making company that pays taxes without fail has property it could pledge as collateral to obtain a loan. The company may operate on leased premises and storage facilities, using rental vehicles and equipment. The business owner’s personal property may not be sufficient for collateral.
In most countries, including Russia, companies turn to sponsor organizations like our fund. We provide state guarantees to small and medium-sized businesses seeking loans, act as guarantors, which allows companies to reduce risks and get the funding even if otherwise they would be rejected by banks. Our support instrument offers better access to lending for small and medium-sized businesses, substantially increasing entrepreneurs’ chances for loan approval.
– What should the entrepreneur come to first, a bank of the fund? What is the plan of action here?
– There are some 80 partner banks we have been working with. The best plan of action for an entrepreneur is to address their own, home bank which they use, or they can pick one from our list of partners and their interesting services and products. The bank, after having analyzed and assessed the company’s documents, sees that it can work with it but there is a problem with collateral, and includes the fund in the deal as one of the participants. The bank will send an electronic guarantee form and the borrower’s package of documents. Then we promptly consider the application and the three parties (the bank, the entrepreneur and the fund) sign the suretyship agreement, which is an inseparable part of the main loan agreement – because we take the lion’s share of risk in the deal.
– New banks are joining your program, Tinkoff, for instance, was a recent addition. Also, new joint products appear, such as the one with Sber. Can you talk about its first results?
– Yes, new partner banks join our program from time to time; the main condition is that the bank has experience in working with small and medium-sized businesses. Most of the banks that work with us are interested in increasing the number of joint deals. With Sberbank, we have worked out a program that we call a flowing guarantee. It is an umbrella of sorts of the Small and Medium-Sized Business Corporation. We automatically provide guarantees for smaller sums, up to RUR 30 mio. Our guarantee significantly speeds up the process of providing money to the client.
The new joint program with Sber was launched in late August. The results for the period of slightly over a month are impressive: over RUR 1.6 bln in loans, with our guarantees covering over 50%.
– Does the entrepreneur always need to take a loan to develop their business?
– No, not always. If you aren’t sure about how you will develop your business, you don’t need to ask for a loan. But if in the critical, problem situation you see opportunities for development, expanding your market share, or entering a new, promising niche, it’s a whole different story. What I’m saying is that the loan gives a boost for growth but it’s not a life saver and being used as such will only make things worse. Unfortunately, not everyone understands that; the level of financial literacy leaves much to be desired.
– What sectors look the most promising for starting a business at the moment? Trade, as always?
– Trade has always been and will be the most popular sector for small business. But there are more. Recently, at a fair devoted to lending to small business, I was approached by several entrepreneurs who told me about their different startups and developing businesses, such as IT services, consulting, children’s goods, engineering, cosmetics production and many others. One of them said that they wanted to open a coffee shop. We offered them a program that offers loans of up to RUR 5 mio for beginning entrepreneurs.
Or here’s another example: a businessman contacted us who was successfully working in translation, but also wanted to open a copy shop. We helped them found a loan under our guarantee.
– You mentioned a coffee shop, but there are plenty of them. How is this niche free?
– It is like real estate. A good location is crucial. If an entrepreneur finds a location with a few competitors and high foot traffic, why shouldn’t they open a coffee shop there?
Answering the previous question, I want to note that businesses related to creative industries, marketing and advertising also have a good chance for success.
Among other promising areas are food production, catering, clothes manufacturing, including what relates to import substitution. Actually, these niches were profitable both in the 2000s and the 2010s and are still offering good opportunities.
By the way, there is an interesting kind of entrepreneurs who achieve their first success in the regions and now want to relocate the entire business or its part to the capital. There are such people among our borrowers, for instance, private clinics. I have recently talked to a Belarusian entrepreneur who was looking for ways to relocate their footwear manufacturing business to Moscow. So, the variety of business initiatives and undertakings is exhaustless.
– And what to do after a successful business launch? It seems that the income will decrease because people have less money. How hard will it be for the business to survive? Will they need to lower the prime cost, cut salaries?
– Prices will remain unstable for a while until we find delivery and logistics solutions. As far as I understand, active entrepreneurs promptly readjust production and logistics chains, discover new supply and marketing channels, and utilize non-conventional schemes. Certain services and goods will always be in demand as people need to buy clothing and food and solve their everyday issues, so there is no reason for concern.
There are serious problems regarding major infrastructural projects as well as the aircraft and automotive industries – but this is not about small businesses; these are tasks that require comprehensive government decisions. Yet, our nation’s history has shown that this can be achieved if required, with resources and personnel available.
– People need to trust a brand. Consumers’ loyalty to well-known trademarks has developed over the years. What mistakes should a startup company avoid while communicating with consumers? What can be done to build brand trust?
– Unfortunately, in Russia you have to invest a lot of money in advertising and marketing to make your brand recognizable, get people to buy your products, and have access to retail networks. But what should small companies do without such investments? This is definitely a huge issue.
Yet, on the other hand, quality products will eventually get noticed anyway. The most important thing is to avoid misleading your customers about the quality of your product. If a customer ultimately sees that a less popular brand produces, say, durable sneakers, he will choose to buy another pair of that brand. The company will eventually attract investors to put money into its promotion, with further opportunities arising as well. Work with large networks requires factoring financing from manufacturers.
– There is a joke saying that Moscow is surrounded by Russia on every side. How is the capital’s business agenda different from the regional one? Is there any difference at all?
– This sad saying has been around for a while, I’d even say for several centuries. Hopefully, it will not always be relevant. In my opinion, work with tax authorities goes more smoothly in Moscow: they do not rattle the business circles, with many companies paying taxes on a regular basis. The situation is different in the regions. A friend of mine, who owns a factory operating in a southern region, included costs of repairing the factory’s leaky roof in the expenses, and tax officers arrived at the enterprise to examine these expenses and even inspected the roof.
Moscow has advanced infrastructure and online services, with many entrepreneurs using e-signatures for contractual agreements. And obviously, one cannot ignore the fact that Moscow, like any other megacity, is a huge market not only for sales but also for emerging ideas, industries and trends.
– What is your advice on operating a business during times of instability?
– You don’t have to stay idle sitting on your money. Just the opposite, it would be reasonable to put it into new projects, or pick up a business that someone has quit and keep it going, being aware of how it operates. You could also launch an additional product line.
– You run a Telegram channel, Kuprinov Na Svyazi (Kuprinov Keeps in Touch). Why did you decide to create it?
– Currently, there is massive interest for such format of communication and information delivery. This allows me to directly communicate with the Fund’s target audience that includes representatives of small and medium-sized businesses, tell them about our work, and promptly respond to the news agenda. The number of subscribers is increasing; they are showing interest, so this project is important and I will further develop it.
– Do you receive any feedback from entrepreneurs? What worries them?
– Of course I do. Most questions concern the Fund’s main activities. There are also subscribers willing to know why banks rejected their loans. For our part, we try to look into it and help them understand reasons behind a lender’s decision.
– What are the reasons for loan rejection?
– There are many. The most common include:
• the entrepreneur unwilling to inform the bank about the loan purpose;
• the company’s annual turnover being several times less than the requested revolving loan;
• the business owner not intending to give personal security and/or personal property as collateral;
• SMEs having substantial tax debts;
• the business owner having negative credit history as regards personal loans and/or their other companies.
The Fund has a consultation center that has operated since March 2022 and offers free information on preferential loan programs as well as their free limits, and even provides assistance in sending applications to our partner banks.