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Businesses want to remain small

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Complicated administrative procedures and weak financial and management capability are why business households do not want to become enterprises.

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Businesses want to remain small

 

Deputy chair of the Can Tho Entrepreneurs Association, Nguyen My Thuan, said some business households in Can Tho City registered to become enterprises but later decided to operate as business households again. 

It is more difficult for enterprises than business households to access official bank loans to expand their business scale.

One report says the private sector makes up 40 percent of GDP, but it is most vulnerable to the influences of the market.

Over 97 percent of private businesses are considered micro or small. They use outdated technologies, have low business performance and weak corporate governance. 

This is why numerous private businesses are dissolved after short periods of operation.

The chair of the Hanoi Female Small and Medium Entrepreneurs Association said the majority of business households don’t want to expand into enterprises. 

“As business households, they only have to pay lump sum tax, but if they become enterprises, they will have to pay corporate income tax, insurance premiums for workers and set up divisions, which will be a burden,” she explained.

Thuan said that complicated procedures also deter business households from becoming  enterprises.

“When setting up businesses, they will have to run cumbersome operation and won’t have enough workers to satisfy all administrative formalities,” she said.

She said that small and medium enterprises find it difficult to access bank loans. Borrowers have to show feasible business plans and collateral for loans, which they don’t have.

Chair of the Nghe An Province’s Small & Medium Enterprises, Phan Thanh Mien, confirmed that small businesses don’t have huge capital and mortgaged assets, and most of them cannot borrow money from banks. But they should be seen as potential clients of banks.

According to Cao Sy Kiem, former chair of the Vietnam Small & Medium Enterprise Association, sources of capital include regulatory capital, capital raised in the capital market and preferential capital from the government. 

Very few businesses have regulatory capital, and they cannot raise funds in the capital market because their credit ratings are not good enough to list shares. 

As a result, 90 percent of businesses’ capital relies on bank loans.

A survey conducted by the General Statistics Office (GSO) found that the non-state economic sector has the highest number of enterprises, workers and capital, but the profit they make is modest, VND188.1 trillion, or 26.4 percent of total enterprises’ profit in 2016. 

US$1=VND22,000

 

Source: VNN

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