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Yeranuhi Soghoyan

Revolving Credit: Shirak Entrepreneurs Need Constant Loan Flows to Grow

Shirak Marz in northern Armenia is considered to be a “risk zone” in terms of investment and business endeavors. There is an organization, the Gyumri Small and Medium Business Development Center, located the regional center of Gyumri, designed to provide loans and technical advice to aspiring entrepreneurial activities.

Artour Zakaryan, who heads the Center, argues that the national government has adopted a correct policy to stave-off the worst consequences of the on-going economic crisis. “If our government hadn’t implemented a correct policy in this regard, the economic crisis would have led to a financial one. Thus, no matter how bizarre sounding, our grantees have increased by three in this crisis year. Compared to twelve operations receiving government credits in 2008 totaling 80 million AMD, that number has risen to fifteen in 2009, with a credit package of 90 million,” states Mr. Zakaryan. Those responsible for the assistance program say that the Center is doing a good job. There are over one hundred businesses taking advantage of the advisory services offered by the Center.

Gyumri Center provides loans and advice

The Center provides courses for firms that have folded, so that they can reorganize their resources and return to work. There are many in Shirak who either run their own business or would like to. Given the numbers, we asked Mr. Zakaryan why so few have been granted loan packages. He replied that thirty applications were received in 2009 but that only fifteen were approved for financing. “The business plans people present must also be realistic. The plans are reviewed in detail so that any monies provided are properly used,” stated Mr. Zakaryan. The loan packages offered by the government usually have a three year repayment period at 12-17%. Mr. Zakaryan says that these features also guarantee that the loans are repaid. “To date, we haven’t had any repayment problems, even though that the bank’s concern. Neither the Center, nor the bank, has had any cause to take anyone to court over non-payment.” Even so-called “black-market” enterprises have come to the Center looking for assistance. These once illegal operations have now gone “straight” and thus can avail themselves of government financing.

Candy producer complains about payment schedule

Karoush Aleksanyan, has been producing “Nouga” candies for many years but had never taken out a business loan. In 2009, Mr. Aleksanyan took a couple of business classes offered by the Small and Medium Entrepreneurship Development National Center (SMEDNC) wrote up a business plan and was approved for financing. Over the phone Mr. Aleksanyan said that he got the loan in September, 2009. “It was a three year loan at 12%. The loan amounted to 1.5 million AMD. I’m pretty satisfied but the only drawback is that I had to start making payments the very next month. I got the loan in September and had to pay 50,000 AMD in October. I had even started to operate on a regular basis.” The businessman states that these conditions are only favorable to the bank. Only by December had he actually started to produce something. Given the New Year’s break, marketing efforts have just been launched. “It turns out that I’ve already paid back 100,000 to the bank without having sold anything. In Russia, they give 2% loans to small business like mine and there are no interest payments for the first three years,” Mr. Aleksanyan complained. With the loan, he purchased production equipment. Work has expanded and four new employees were hired.

Vazgen Gevoryan – “I like the government’s loan program”

Vazgen Gevorgyan, is a small businessman with another opinion regarding the government’s loan program. In 2009, he approached the Gyumri Center for a loan to expand his pottery and ceramics business. “I really value what the government is doing. First, they don’t require any collateral and then, the interest rates are low. I received a 1.480 million AMD loan at 12% for three years.” Mr. Gevorgyan applied to the Center in March, 2009 and took some business classes in April along with twenty other novices. He says that nineteen have already drawn up their own business plans and that this is a great achievement. His only complaint is the delay in getting the loan money. Mr. Gevorgyan had to wait three months for the loan to be finally disbursed. He’s used the money for equipment, to purchase clay and other items. He’s also spent some of his own savings to grow the business. Production has yet to get started and he is still looking for qualified craftspeople. He says that operations should begin by February and argues that there is a demand and market for his goods. Small business loans disbursed by the Center do not exceed 2 million AMD. “At first I was planning to ask for 2 million but then sat down and redid the math. I wanted to make sure I could repay it all. I then opted for just a bit under 1.5 million since I was convinced I could pay it off. Some of the others also dropped the amounts they were filing for. The Center advised them to only ask for what they could pay back and not more,” stated Mr. Gevorgyan.

Egg producer points to foreign exchange risk

Rostom Soukiasyan, another businessman, says that the dollar-dram exchange rate also poses a risk when taking out a loan. This is especially a concern when one is importing equipment or other goods using dollars or Euros and the loan is calculated at the equivalent dollar rate at the time. Mr. Soukiasyan related that he began collaborating with the Gyumri Center in October, 2007, and that he’s received a 19 million loan from Anelik Bank at 15%. “I’m in egg production and own a poultry farm. I import the birds and the birdfeed. I only use locally produced barley and wheat. When I got the loan the dollar was pegged at 307 AMD. Now see where it’s reached. I used up the loan a long time ago and now have dipped into my personal savings. In other words, those individuals engaged in small and mid-sized business are back at zero after repaying the loan,” explained Mr. Soukiasyan. The egg producer also had some unflattering words for the “stuffy” attitude of the banks. “They own the finances. They don’t care if it’s good times or a crisis. They want their money paid back every month. The impact of the crisis seems to have only affected us. The banks never made any compromises. The banks stick to their traditional policies,” argued Mr. Soukiasyan.

Cheese manufacturer says loan approval takes too long

The “Amasia Cheese Plant” got its first loan in 2004 with the help of the SMEDNC. Director Norik Shaboyan presented a 15 million AMD business plan. 10 million was to come from ACBA Bank and 5 million from the SMEDNC. The bank appraised the cheese plant at 10 million AMD and the loan was later approved. Director Shaboyan got his 15 million loan at 15% for three years. “I got loans via the SMEDNC during the ears 2004-2007. I’m pretty satisfied. The only drawback is that the approval process takes one month. I paid off the original loan in full and wanted to take out another. Rather, I applied again and that’s when the problems began,” stated Norik Shaboyan. This time around ACBA Banks appraised the plant at 32 million, and thus, the businessman’s application was denied. Mr. Shaboyan then went to Inecobank for a commercial loan. At the last minute, when only one signature was needed for approval, the bank informed him that they couldn’t grant the loan and that he would have to go back to the bank he was dealing with in the past. “I was forced to take out a commercial loan with ACBA at 22% annually. I’ll pay off the last million AMD by the end of the month in order to get another loan. I’ve been able to pay back the loan at fairly high rates even during the crisis,” says Shaboyan. “I’ve applied to ArmBusinessBank for a loan this year. If nothing unforeseen crops up, I should get the loan.” The bank has appraised the cheese plant at 40 million AMD and appears ready to grant Mr. Shaboyan a 5 year loan of 15 million at 15%.

Hamlet Matevosyan – “The banks have undervalued my milk plant”

Also in on the conversation was Hamlet Matevosyan, Director of the Victoria milk plant in Akhourian. He complained that the banks had undervalued his plant. “The banks really undervalue by about 50%. This means that we can’t get sizeable loans. For example, my plant is worth about $300,000 but the banks appraise it at only $50,000,” stated Director Matevosyan. A similar complaint was voiced by Gevorg Hakobyan, Director of the Meghrashat milk plant. He also applied for a loan during the crisis. For years, the village faced a problem of storing its milk during the summer months. First of all, those firms collecting the milk would cut the prices they would pay for the product. Sometimes, they didn’t even buy the milk since it’s in plentiful supply during those months. Then too, some firms use milk powder to produce their line of dairy products, and not raw milk. In April, 2009, Mr. Hakobyan took some business courses organized by the Center. He drafted a business plan that was approved in June and received his loan in August. For collateral, he used a refrigerator valued at 3.6 million AMD that he obtained with the loan from the Shirak Competitive Center. Mr. Hakobyan says that he received at 1.3 million AMD loan from the government at  6% annually. “Our business plan is designed to collect milk from the villagers, refrigerate it, and then to sell it to re-processors in the fall and winter months, when milk supplies are down. Due to the crisis, however, our refrigerated milk didn’t sell and we were forced to dump 2,800 liters of milk,” states Director Hakobyan. “Right now, the plan can be regarded as a failure but we won’t give up halfway down the road.” Entrepreneurs, especially in the agricultural sector, complain that three year loans are too short in terms of payback. True, the interest rates of these government backed loans are less when compared to commercial and business loans, but they don’t afford those in agri-business much potential in terms of long-term growth. Businesses aren’t able to turn a profit and owners are placed in a situation where they must think about taking out a new loan even before the old one has been paid back.

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