Vietnam banks to slam doors on home-based business owners

14:30 | 14/02/2017 Finance - Banking

Home-based businesses will soon find it, not just increasingly difficult, but impossible to find a bank loan.

The central bank has tightened lending criteria for household and other unregistered businesses, meaning they will not be eligible for bank loans.

With the change coming into effect from March 15, a housewife who wants to earn some extra money by selling handmade soap will have to apply for a consumer loan rather than a commercial loan from the bank.

A consumer loan is more expensive than a business loan, which will later reflect in the costs of operating her business, limiting revenue growth and profitability.

Vietnam currently has 5 million unregistered home-based businesses, said Vu Tien Loc, chairman of the Vietnam Chamber of Commerce and Industry (VCCI). However, the country plans to relax the business environment so that by 2020 it will have one million private businesses, most of which will be home-based businesses that have converted to legal entities.

Loc said because some regulatory requirements, mostly involving administrative procedures and tax policies, are expensive and time-consuming, the vast majority of local businesses choose to remain as home-based micro businesses.

Also according to the VCCI, about 70 percent of small business owners, including home-based ones, that apply for a bank loan get rejected, even though they are critical to job creation in Vietnam, employing 52 percent of the private sector workforce.

Theo Vnexpress