The support funds are a necessary solution solving partly the problem of accessing loans for the small and medium-sized enterprises which always have inherent difficulty in building trust with banks and giant investors. However, a numerous number of such enterprises have not yet interests in approaching this “channel”, partly due to the challenges of loan repayment, especially in the context of the risky COVID-19 epidemic.

The adoption and entry into force of Circular No.14/2020/TT-BKHDT (“Circular 14/2020”) are expected to make such risks no longer difficult for the enterprises directly lending from the Small and Medium Enterprise Development Fund (“SMEDF/Fund”) under the Ministry of Planning and Investment.

SMEDF – “the guardian angel” for small and medium enterprise

SMEDF is one of the most representative funds supporting small and medium enterprises which is established by the Prime Minister in 2013 under form of non-budgetary financial fund of the State. Currently, more than 1,600 small and medium enterprises have accessed the disbursements of above VND149 billion from this Fund. SMEDF mainly provides short-term and medium-term loan as well as direct lending. However, the mechanism for lending risk treatment are not clearly regulated in the regulations of the Fund.

Among the disorderliness of the epidemic, understanding the struggles of small and medium-sized enterprises that might have been and would lend, for the first time, Circular 14/2020 sets out the regulation for SMEDF to gently treat lending at risk, with the spirit “all for the enterprises”.

Cases related to lending risk treatment

The beneficiaries of this mechanism are the enterprises lending without being able to repay the debts fully and properly in four cases:

• suffering financial and/or property damages due to natural disaster, crop loss, epidemic, fire, war, or national emergency; or
• being at risk due to objective causes that directly affect the production and business activities; or
• having bad debt based on the results of debt classification; or
• being bankrupted.

  Risk treatment measures

Circular 14/2020 lists down seven measures including: (1) adjustments of debt repayment term/debt amount; (2) debt rescheduling; (3) debt charge-off; (4) debt sale; (5) disposal of property security; (6) outstanding interest write-off; (7) outstanding principal write-off.

As the case may be, the enterprise is entitled to request the State authorities to apply the preferred measure. In whichever case, a prerequisite condition is that the enterprise shall use the loans for the right purposes. The enterprise suffered from the epidemic would be applied all of the measures, except for outstanding principal write-off.

The Prime Minister is vested to decide the application of measures including debt sale, disposal of property security and outstanding principal write-off that reduces the SMEDF charter capital. Regarding the measures such as debt charge-off, outstanding interest write-off and outstanding principal write-off which does not reduce the SMEDF charter capital, the authority of application is vested to the Minister of Planning and Investment. The Fund decides by itself in the remaining cases.

Circular 14/2020 shall enter into force on February 25th, 2021.