Vietnamese startups don’t dare borrow from banks

By Ha Truong    November 27, 2018 | 07:00 pm PT
Vietnamese startups don’t dare borrow from banks
Southeast Asian startups attracted $7.86 billion worth of investments last year, of which Vietnamese accounted for less than 5 percent.
Risk of losses, lack of collateral and early repayment pressure make it difficult for startups to borrow from banks.

Hoang of Hanoi's Hai Ba Trung District is the CEO of a medical startup. But for finance, he had to resort to his wife’s savings and loans from relatives.

He said: "Banks often ask for collateral for loans. Being an entrepreneur means having nothing but an idea. I can't just take my business plan to borrow money from banks."

Van from the northern province of Hung Yen began an agricultural startup in 2012. But though banks claim agriculture is a priority area and they lend at low interest rates, Van found out it was not easy to borrow VND200 million ($8,600) despite making great efforts.

"Mortgage requirements, difficult legal procedures, preferential interest rates for only a short time ...," he listed the problems.

"The bank said that my company had to break even in two years so that it could get back the money."

While admitting that startups are struggling to access bank credit, experts said credit institutions must comply with regulations.

Vu Tien Loc, president of the Vietnam Chamber of Commerce and Industry (VCCI), said approaching venture capital funds could prove fruitful for startups. Vietnam has around 50 funds willing to invest in startups but they are mostly small.

Statistics from Topica Founder Institute show that last year 92 startups in Vietnam received equity investments, totalling over $291 million, nearly double the number and half higher in terms of investment compared to 2016.

But despite the strong growth, startup investment in Vietnam is modest compared to other countries in the region and the world.

According to TechinAsia, last year Southeast Asian startups attracted $7.86 billion worth of investments. Vietnamese accounted for less than 5 percent of this.

The number of deals in Vietnam is increasing, but those worth less than $1 million accounts for a majority. The number of startups attracting investments of more than $10 million was very small.

"It is necessary to create a mechanism to encourage these funds to invest in startups," Loc said.

He said investing one Vietnamese dong to start a business can create hundreds of dong for society. Therefore, Vietnam needs to find a way to increase the number of domestic investment funds or attract foreign funds. "This would be a good source of funding for start-up projects."

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