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Financing as it relates to making SMEs Globally Competitive

Financing as it relates to making SMEs Globally Competitive Presented by: Benel P. Lagua President and COO Small Business Corporation Financing – Making SMEs Globally Competitive Finance and the Small Business World The SME Finance Life Cycle The SULONG Program

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Financing as it relates to making SMEs Globally Competitive

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  1. Financing as it relates to making SMEs Globally Competitive Presented by: Benel P. Lagua President and COO Small Business Corporation

  2. Financing – Making SMEs Globally Competitive • Finance and the Small Business World • The SME Finance Life Cycle • The SULONG Program • Small Business Corporation • Types of SMEs – SBC Credit Delivery System • Difference Between SBC Financing And That Of The Banks • Conclusion; How to Get in Touch

  3. Small Business World We aim to fill in the gaps in SME financing

  4. Role of Finance • To channel funds from those who wish to save to those who need to borrow • Link the present and the future, allow savers to convert current income into future saving • Finance is like any other market, matching demand and supply for loanable or investable funds • Pooling of resources/savings

  5. Follow the Money • Empirical studies confirm the strong link between financial development and economic growth • Without a financial revolution, the industrial revolution might not have taken place • To be competitive, SMEs must find the appropriate financing to fuel growth

  6. The SME Finance Life Cycle

  7. The SME Finance Life Cycle Maturity Beyond 5 years Growth Formal Finance Mezzanine Venture Capital Up to 5th year Introduction Personal Finance Start-up At least first 2 years

  8. According to Dun and Bradstreet reports, “Businesses with fewer than 20 employees have only a 37% chance of surviving four years (of business) and only a 9% chance of surviving 10 years.” According to a Bradley University study, “The failure rate for new businesses seem to be around 70% to 80% in the first year and only about half of those who survive the first year will remain in business the next five years.”

  9. One size does not fit all!

  10. Perspective of Stakeholders Banks impose very cumbersome procedures; collateral-minded ; poor service to SMEs SMEs

  11. Perspective of Stakeholders SMEs are risky; Have inferior collateral; low capitalization SMEs BANKS

  12. SULONG PROGRAM

  13. Background of SULONG In support of the National SME Development Plan, the government financial institutions (GFIs) collaborated to design a uniform lending program. Under the SME Unified Lending Opportunities for National Growth or SULONG, the participating GFIs shall apply simplified and standardized lending procedures and guidelines, e.g., loan purpose, fee structures, interest rates, application forms and other lending parameters for evaluating the loan applications (P5 Million and below).

  14. Background of SULONG The SULONG scheme is in addition to the existing financial services of the participating GFIs: • DBP • Land Bank • NLSF • PHILEXIM • QUEDANCOR • Small Business Corporation • SSS

  15. Background of SULONG Commercial banks, thrift banks and rural banks engaged in lending to SMEs may also avail of SULONG allocated funds through the participating GFIs’ wholesale lending facilities under the SULONG program.

  16. GFIs’ SULONG Launch February 2003

  17. SULONG Awarding CeremonyP27 Billion in 2004 P82.6 B from 2002 to January 2005

  18. CREDIT CHAMPION FOR SMEs Small Business Guarantee and Finance Corp.

  19. Small Business Corporation Republic Act Nos. 6977 and 8289 MAGNA CARTA FOR SMALL AND MEDIUM ENTERPRISES The Small Business Guarantee and Finance Corporation (Small Business Corporation) was created in 1991 by virtue of R.A. 6977 or the Magna Carta for SMEs, later amended by R.A. 8289 in May 1997. Banks SMEs

  20. Vision Statement “A globally competitive and domestically viable SME sector empowered to access financing and business technologies at terms advantageous to their growth.”

  21. Accomplishments in 2004 • P3.3 Billion in SME financing in 2004 • 37% increase from 2003’s P2.4 Billion • 2,422 SMEs assisted in various industry sectors in 2004

  22. Assistance to SMEs in 2004 P3,268.011M

  23. Accomplishments in 2004 • Targeted loan approvals for the year is P3.0 Billion. Actual loan performance for 2004 is P3.3 Billion, 110% of the target. • 2,422 SMEs assisted in various industry sectors in 2004. • Target for 2005 is P3.6 Billion

  24. WHOLESALE ACCOUNTS Philippines 2002 to 2004

  25. Total4,406.266 M WHOLESALE ACCOUNTS BY PROVINCE Year Conduit Banks Amount (Pesos) 2002 25 810.500 M 200339 1,284.144 M 200455 2,311.622 M

  26. RETAIL ACCOUNTS Philippines 2002 to 2004

  27. RETAIL ACCOUNTS BY PROVINCE Year Borrowers Amount (Pesos) 2002 114 262.242 M 2003387 766.026 M 2004207 654.224 M Total 708 1,682.492 M

  28. The FinancingPoint of View Types of SMEs from

  29. Already Bankable SMEs 1 Substantial business track record and/or size 2 Established management systems 3 Significant credit track record 4 Sufficient collateral

  30. Near Bankable SMEs 1 Substantial business track record and/or size 2 Established management systems 3 Absence of or limited credit track record 4 Absence of or inferior collateral

  31. Viable But Pre-Bankable SMEs 1 Limited business track record and/or size 2 Limited management systems 3 Absence of credit track record or, in the case of recovering SMEs– negative track record 4 Absence of or inferior collateral

  32. SBC Credit Delivery Intervention

  33. For Already Bankable SMEs Wholesale funds • Helps SMEs get lower interest rates • Helps SMEs get longer repayment terms • Helps SMEs in the province access credit (liquidity for the provincial financing system)

  34. For Near Bankable SMEs Credit Guarantees • Helps SMEs enter into the formal financing system • Helps banks open-up and learn more on how to finance near bankable SMEs

  35. For Viable But Pre-Bankable SMEs Direct Loans • Helps SMEs access credit at better rates relative to informal sources • Trains SMEs in formal financing and in starting a credit track record • Helps an SME grow in its industry and to a respectable size over time with continuous financing

  36. Non- Bankable SMEs Near Bankable SMEs Bankable SMEs The SBC Credit Delivery Intervention Higher Competitiveness Direct Lending Credit Guarantees Wholesale Lending

  37. SBC Direct Lending Programs

  38. DIRECT LENDING FACILITIES of SB Corporation Short-Term Facilities (one year or less) Loan Purpose: Transactional Working Capital 1. SME-FRIEND – short-term financing of export orders 2. SME-FIRST – short-term financing of receivables (eventually POs) of suppliers of top 1,000 corps. or industry anchor firms

  39. DIRECT LENDING FACILITIES of SB Corporation Medium-Term Facilities (above one year up to five years) Loan purpose: Fixed Asset Acquisition (largely) • SME-GUIDE – medium-term financing of SME projects endorsed by DTI-Pos • SME-FORCE – medium-term financing of start-up or expanding franchisees

  40. Must be an SME (not less than P500 Thousand and not more than P100.0 Million asset size excluding the value of land). Must be Filipino-owned (at least 60% in case of corporations). Not engaged in farm-level agri/aqua production, in trading of imported goods and retail trading, in vice generating activities, or in housing. Minimum Borrower Qualifications:

  41. Must have at least one year profitable track record; Start-ups and/or less than one year business track experience can be considered only under SME-FORCE and SME-FIRST Minimum Borrower Qualifications:

  42. Difference Between SBC Financing And That Of The Banks

  43. Difference Between SBC Financing and that of Banks

  44. Factors to Loan-Absorption Capacity of an Enterprise • Market expansion potential • Feasibility of production expansion • Profit margin prior to financing • Debt-equity ratio • Permanent vs. seasonal working capital • Maturity matching • Leverage, break-even

  45. Small Business Corporation is committed to work for a more empowered Philippine SME Community. Small Business Corporation is committed to work for a more empowered Philippine SME Community.

  46. Small Business Corporation Head Office 17th and 18th Floors 139 Corporate Center 139 Valero St., Salcedo Village Makati City Telephone Nos.: 751 1888 Fax: 81305726 E-mail: sbcorporation@sbgfc.org.ph Website: www.sbgfc.org.ph Cebu Office Tel.: (032) 253-755 Fax: (032) 253-4840 Email: sbgfcvao@info.com.ph

  47. Davao Office Tel.: (082) 221-1488 Fax: (082) 221-0858 Email: sbgfc-mao@skyinet.net La Union Office Tel.: (072) 242-7647 Email: sbgfc@info.com.ph Naga Office Tel.: (054) 811-6694 Fax: (054) 811-2858 Email: sbcbicol@mozcom.com

  48. Thank you! Benel P. Lagua blagua@sbgfc.org.ph

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