Last year, Shenzhen Vastking Electronic Co., learned just how difficult it can be for SMEs to get financing in China.
Although the company, which has 300 employees, had built a substantial track record as a manufacturer of inexpensive personal computers and monitors, smartphones and tablets, bank loan officers wanted a welter of proof that the company could repay a small business loan.
After handing over stacks of financial statements and other documentation, Vastking’s officials were told that without real property to put up as collateral, they didn’t qualify. Since the company leases its factory, the only way they would be able to borrow was to get a third party to guarantee the loan—and even then, Vastking would have to provide the guarantor with a deposit of up to 20 percent of the loan amount. “We thought that rule was inappropriate,” says Chen Weilin, Vastking’s legal representative and a company director, “so we didn’t continue.”
“We thought [getting a loan] would not be that difficult,” Chen adds. “Ads from banks said you are able to get financing in one week, which never happened. Generally, the lending conditions of the four major banks are tough.”
There are alternatives. Chen’s company turned instead to a loan program recently launched by B2B website Alibaba.com that gives companies that participate in its OneTouch trade services platform access to unsecured loans ranging from RMB 1 million ($163,000) to RMB 10 million ($1.6 million).Vastking, a OneTouch customer for the past three years, was able to borrow RMB 10 million carrying an annual interest rate of 12 percent, which Chen calls “acceptable.” Creditworthiness for the loan, which gave the manufacturer financial flexibility to take on more customer orders, was established by examining the company’s trading activity on Alibaba.com.
Vastking is one of 58 companies that qualified for loans totaling almost RMB 120 million ($19.5 million) in the Alibaba OneTouch loan program’s first month of operation. Working with Alibaba.com as a marketing agent and a source of customers, seven banks are participating in the program, providing the lending capital to SMEs.
“Banks originally had no way to provide loans to these SME customers,” said Li Chunqiu, senior customer services manager for Alibaba.com’s unsecured loan program. “But with Alibaba.com’s new loan program and the data that comes with it, banks are now given more opportunities to lend money to these customers and also increase customers’ stickiness.”
Alibaba.com is now in discussions with several banks to enhance the program. The plan is to prequalify the website’s more established exporters for loans, which would reduce the processing period from the current 20 working days to about five. Starting in September, companies with good track records can also qualify for loans carrying interest rates as low as 8 percent.
