The difference between the credit systems is directly related to the difference in the legal status of the individual entrepreneur and the borrower, who is employed for payroll. A loan for individual entrepreneurs can go both for business development (and directly or indirectly), and for third-party goals (but not in all programs). And the reason is that an entrepreneur is at the same time both a legal entity involved in business and an individual like a wage worker. This feature introduces additional difficulties in the issue of obtaining a loan for the creation and further development of the business.
From an economic point of view, a loan for entrepreneurial activity differs from all others by its intended purpose. However, from the point of view of a potential borrower, it is more important that such a loan is much more difficult to obtain, because here the success of the business is a guarantee of successful repayment, and not at all a stable salary (like that of a hired worker). And success, reliability, business profitability is much harder to calculate. And the risk of failure is very high. Nevertheless, the main banks of the Russian Federation (Russian Bank, Private Bank) support several programs specifically designed for business lending.
IP credit programs
You should start with the most famous and large (by the number of branches) Bank of the Russian Federation. Russian Bank supports several credit programs that differ in their intended purpose and conditions of receipt.
This is one of the most well-known credit systems in Russian Bank, designed for future and aspiring individual entrepreneurs. Its purpose is to launch, promote and further develop small business projects. The main feature is that the money received from the bank is mostly used to purchase a franchise from a franchiser. Moreover, a company selling franchises must be a partner of Russian Bank. At least this is very desirable. The franchise provides the franchisee (customer-user) several key points at once: a ready-made, developed business model, a ready-made customer base (accumulated by advertising and market activities) and guaranteed deliveries. This minimizes risks and makes profits stable. The value of all these advantages depends on the promotion of the franchise. The more famous it is, the more expensive it is. The loan terms for this program are as follows:
- the minimum loan is 100 thousand rubles, and the maximum – 3 million rubles. With the acquisition of some franchises, the amount can grow to 7 million rubles;
- loan period ranges from six months to 3.5 years;
- the size of the down payment is almost always at least 30% (it is believed that this is how an entrepreneur invests in his own business);
- if the development of the business according to the plan takes no more than 2 years, then the annual interest will amount to 17.5%, if the loan term goes beyond this limit – 18.5%;
- financial guarantees to the bank. Three options: a pledge of immovable and / or valuable movable property, the guarantee of financially wealthy individuals and the use of non-current assets. These are assets that bring the company a long-term profit (for several years). This includes intellectual property, production space, equipment and technology, etc. It is important that non-current business assets are also acquired for the loan received, therefore this is the most suitable option for low-income entrepreneurs;
- the entrepreneur will be obliged to insure all non-current assets.
What is required from the client in order to use the program “Business Start”? The minimum list is:
- passport and its full copy, including the sheet, where registration is indicated (permanent or temporary). And the IP should conduct business in the same city where he lives. Otherwise, he will most likely be denied a loan;
- the client must have Russian citizenship;
- men under 27 years old must present a military ID (original and copy) or registration certificate;
- extract from EGRIP on registration of the borrower as an IP. Moreover, if an entrepreneur has previously conducted some kind of business, a declaration from the tax service about the last reporting period will also be required;
- for those who have entrepreneurial experience there is an additional condition – for the last 3 months the client was not supposed to be engaged in business.
If the guarantor participates in the case, a number of demands will also be made to him. The first three points are similar to those of the borrower. But the guarantor will need to transfer to the bank an income statement in the form 2-NDFL. And if he himself is an IE, then we need a tax return for the last period (form 3-NDFL). The bank will deliver the final verdict only after the client additionally submits the following documents to the institution:
- cooperation agreement with the franchisor;
- certificate of registration with the tax service (as the SP);
- various licenses and permits, if these are required for this type of business (for example, the production of toxic materials or the arms trade);
- permission to use production / retail / office / warehouse space;
- permits from environmental and environmental control authorities (if the type of activity is related to the use of natural resources or influence on them).
Monthly payments are made using the annuity scheme. The service of early repayment of the loan is provided at any stage of lending without any hidden interest. In case of non-payment, a delay of 6 months (sometimes a year) is possible, but for valid reasons (serious illness, force majeure in a business that is not dependent on an entrepreneur, family circumstances). In case of late payment without such reasons, double interest rate is charged.
The name of this loan speaks for itself. It does not require collateral or confirmation of the purpose of lending. This concessional lending is intended to help those individual entrepreneurs who have already started to do business, but are experiencing serious material difficulties. Lending terms are as follows:
- The size of the loan ranges from 80 thousand to 3 million rubles.
- The time for which funds are issued may vary from six months to 3 years.
- Interest rate: up to 2 years – 19%, more than 2 years – 19.5%.
- Financial guarantees to the bank – only the guarantee of individuals.
- This lending is implemented fairly quickly. After a maximum of 3 days, the borrower will receive a final response.
To get such a loan for individual entrepreneurs, you must provide a set of documents similar to the one described above, but including fewer positions. You do not need a contract with the franchisor, as well as all sorts of licenses and permits. But with the conduct of business the opposite situation. The entrepreneur, on the contrary, should work for a certain period in this area. For trade – at least 3 months, in other areas – at least six months. For the guarantor, the documentation remains unchanged.
Another advantage is the ability to choose the type of payments (annuity or differentiated). It is possible to repay the Trust credit at any time without commissions, and for failure to pay without a valid reason, a sanction is imposed – double interest for the overdue payment. There is also a subroutine supported by Russian Bank, Business Trust. It differs from the previous version only in the extended period for which the bank issues funds.
This short-term type of lending is also intended to help entrepreneurs already engaged in the market. However, such a loan has a specific purpose – the acquisition or replenishment of current assets (raw materials, semi-finished products, stock, daily expenses). Here, financial guarantees are not the guarantors or the valuable property of the entrepreneur, but non-current assets of the business. As a rule, this is some kind of equipment, service cars, working areas, in the agricultural sector – cattle. There is no clear set of conditions here, since the loan is a priori small and is issued for a short period. Usually for a year and a half. Documents entrepreneur must provide the same as in the loan “Trust”. All requirements are standard. Unless it is worth mentioning the requirements for the minimum terms of doing business: for trade – 3 months, for all other types of business – six months, for a company operating seasonally – one year.
If the previous program is aimed at solving short-term, tactical tasks by an entrepreneur, then Business-Invest is intended for large, strategic, long-term business financing. This credit system operates with large loans for quite long periods (several years). With this money, a businessman / businesswoman will acquire new capital (squares, high-tech equipment), new brands and licenses, which allow expanding business, invest in improving the skills of workers and improving the quality of working conditions. That is, Business-Invest is intended for the acquisition of new non-current assets. Russian Bank provides this loan to quite experienced entrepreneurs who have demonstrated high rates of their work and achieved high profits. The bank must be confident in the guarantee of the return of the money spent.
Now it is worthwhile to consider business proposals from one of Russian Bank’s main competitors.
This program has a lot in common with Business-Invest from Russian Bank. However, there are differences. First of all, in the target destination. Here it is more diverse. Private Bank provides an opportunity not only to expand a specific business strategically, but also to become an investor in some other area. With the money received, you can purchase land, multi-purpose buildings. You can carry out major repairs or invest in transport. Having become a successful investor, an entrepreneur will be able to accelerate business development. An important feature is that if the client already has a loan in another financial institution, then it can be refinanced to receive an “Investment” one. The main conditions of the program are as follows:
- Annual interest – 13.5%.
- The minimum loan is 850 thousand rubles.
- Loan term – up to 10 years.
- For valid reasons, it is possible to postpone monthly payments for up to six months.
- The size of the deposit in monetary terms may not be all 100% of the loan amount, but only 85%. As collateral are accepted: current and non-current assets of the enterprise, real estate and transport outside the business, guarantee (individuals and small business support funds).
- You can choose one of two forms of credit – one-time loan, issued at a time, or a special credit line;
There is a fee for receiving a loan – 0.3%.
As for the set of documents, then, as a rule, it does not differ from the one needed for Russian Bank “Business-Invest”. Here it’s not so much the personal documentation of the entrepreneur that is important, as are the accounting and technical documents, reflecting the ratio of profits and costs, the amount of capital turnover, etc.
It happens that the bank pledged the property that its owner put up for sale. This form of lending is a way to purchase such property. In pledge there can be different things useful for business – transport, technical equipment, real estate. The value of the mortgage property is almost always significantly lower than the market, low interest rates, there are no fees. In fact, this is just the purchase of the necessary goods, only stretched in time. It’s not always possible to find the right amount of money. Especially if you need a lot of goods, but it is expensive. Here are the conditions:
- Loan term – up to 10 years.
- The loan amount can reach up to 150 million rubles.
- There is a minimum down payment of 20%.
- The collateral can again be the same acquired property.
- No commissions.
The company has a current account (PC), which receives monthly working capital. With this account, the company conducts daily expenses, makes settlements with contractors, partners, and so on. It happens that sometimes there is not enough money or their receipt is slightly delayed. In order to develop the company without such “bumps”, you can use overdraft loans. If a bank sees a stable work of a company, then it is not difficult for it to organize the possibility of a negative balance on the PC. This balance is not limitless, it has a limit (overdraft bottom).
This limit is determined by the size of the average monthly turnover of funds entering the RS. Usually a contract is signed between the bank and the entrepreneur, according to which the overdraft will change regularly (every six months, a year) depending on how well the entrepreneur is doing. Private Bank offers “Overdraft” on the following terms:
- The minimum interest rate is 12.9%.
- The minimum loan size is 850 thousand rubles.
- Deadlines – a year or two years with tranches of 30, 60 days.
- No deposit required.
- The maximum overdraft limit (bottom) is 50% for MS in the VTB group.
- No commissions.
- The turnaround transfer service from other banks is supported for 90 days.
- It is not necessary to always reset the account.
Interest rates and “pitfalls” in lending to individual entrepreneurs
The highest interest rates occur when the entrepreneur seeks a loan without some kind of financial security (collateral). It is clear that the bank seeks to receive as soon as possible the amount of money that will cover its costs. If the loan for individual entrepreneurs is unsecured, the interest rate can go up to 30%! This is really a huge overpayment. With collateral and guarantors, the average rate is much lower, but still higher than in all other credit systems. It is 16-18%. From here, the first “underwater stone” is found. These are big overpayments. The entrepreneur will eventually give the bank two, and sometimes three times as much as he received as a loan. The only way to reduce costs is to support small business development funds. But getting this support is not easy. The second “underwater stone” is that banks always strive to evaluate mortgage property as low as possible.
The price that a bank specialist calls for this property will be equal to the amount of money issued by the bank. Estimated cost is always significantly lower than the real market. As a result, the borrower may not be enough loan received for the full development of their business. The third “underwater stone” is created by the entrepreneurs themselves. In order to avoid the increased tax burden, every entrepreneur makes the most of the hype, artificially lowering the turnover and assets figures. This makes it difficult for the bank to clearly determine how much money to trust this client. Finally, the fourth “pitfall” is that many banks refuse to issue consumer loans to individual entrepreneurs.
Confusion in legal status (the individual entrepreneur is in business, but he is also an individual) the borrower does not bring any benefit to the banks. Therefore, learning about the purpose of the loan, the organization narrows the sector offers. But sometimes a consumer loan is a “last straw” for a person. Nevertheless, this article makes it clear that not everything is so hopeless, and if you wish, you can find a suitable option.