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Small and Medium-Sized Businesses. Everything for Growth!

September 06, 17:00 UTC+3
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Key conclusions

Favorable credit conditions to be created for small and medium-sized business

“There will be the following rates for priority development areas: 8.9% for mid-sized businesses and 10.6% for small business. Loans will be granted for seven years in the amount ranging from 3 mln to 500 mln rubles. Pledging real property or portable property should act as collateral to cover credits, but we will be trying to carry it out as mildly as possible,” said Alexander Braverman, Chief Executive Officer, SME Corporation.

“We have created special lending products that we plan to adjust for businessmen as soon as possible. First of all we are now focusing on products related to the Far Eastern hectare,” said Dmitry Golovanov, Chairman of the Board, SME Bank JSC. 

“There are particular lending products that the Far East Development Fund is implementing throughout the area together with the nation’s top banks: Sberbank and VTB. More than 5 bln rubles have already been granted to 369 entities at 10% per annum. We cover the industries that SME Corporation does not cover, meaning trade and service sector,” said Vladimir Solodov, Deputy Presidential Plenipotentiary Envoy to the Far Eastern Federal District of the Russian Federation.

Advanced Development Zone mechanism spurs on Far East’s SMEs

“Today, we see that the instruments are beginning to work in the Far East, and see results regarding the development of small and mid-sized businesses. Out of 347 residents in the advanced development zones, small and medium-sized businesses account for 80%. Out of 465 residents of the free port, small and mid-sized businesses account for 90%. The threshold investment requirement for entering a priority development area is 500,000 rubles today,” Vladimir Solodov said.

“We have transparent procedures to create new advanced development zones and the free port of Vladivostok, which are defined by decisions of the Russian government with a transparent feasibility system based on investor interest,” Vladimir Solodov said.

Challenges

Heavy fiscal burden on SMEs

“There is an issue of a rising property tax burden – the tax on organizations’ property and the tax on property of individuals calculated based on the cadastral value of real property items. In the majority of Far Eastern regions there has been a reevaluation of the cadastral value,” said Boris Beloborodov, Director, Vneshservis. 

“We feel that one more issue is unfair. On remote northern territories that are detached from the mainland, there is an obligation imposed by the state on entrepreneurs to cover the travel costs and longer leaves of absence by employees. With us, it takes 24 extra days. The flight from the Magadan Region reaches up to 40,000 rubles per single employee. Small business cannot bear such costs. We have calculated that on average our payroll budget is 20% higher than in other Russian regions,” said Aleksey Mostovshchikov, General Director of Tvoi Vybor.

Bank credit bottlenecks for SMEs

“As of now banks request the operations record of at least six months. Meanwhile, there are entrepreneurship support funds at the regional level that offer guarantees and sureties out of the funds of the federal budget, but they are not being applied. Why don’t banks provide credit resources to startup businessmen having no operations record if there are such funds,” Aleksey Mostovshchikov noted.

Solutions

Reduction of fiscal burden on SMEs

“In order to provide small business with an opportunity to come up for air and finally start working and developing in the Far East, there are two payment types that we think should be adjusted. First of all, those are contributions to non-budgetary payroll funds for small business employees. It is necessary to return composite rates on contributions to non-budgetary funds to the level of 16-18%. Concurrently, what would be needed are demands for greater responsibility for timely and correct calculation, and for the transfer of those contributions,” Boris Beloborodov said.

“The most radical way is to widen the priority development zone mechanism or one of its type, the free port of Vladivostok, to the whole territory of the Far Eastern Federal District. As for the property tax rate, I think that it would be reasonable and fair to reduce the top rate that has been set at 2% in the Tax Code to the level of 1%,” Boris Beloborodov said.

Funding professional staff training for SMEs

“It is very important to develop credit products allowing enterprises to actively participate in staff training,” said Ilya Semin, Director of the Monitoring Centre for Industry Development.

“The key thing is to work with people. Higher education institutions and universities of the Far Eastern Federal District are facing a big task. Higher education institutions can become a factor raising both awareness and motivation, up to the initiative to chart the mandatory course on entrepreneurship within the framework of the regional component,” Vladimir Solodov said.

Additional credit instruments to support SMEs

“We think that pre-export financing solves the issue of cash gaps and by its designated purpose should solve the problem of covering costs on production of agricultural products, on bringing the quality standard to international levels, and on transportation and customs registration,” said Mikhail Korsakov, Director for Business Development at Agrofirma "Amur". 

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