Mon, Oct 25, 1999 page19

• Loan fund may not help businesses rebuild

  QUAKE RECONSTRUCTION Last week the government unveiled an NT$50 billion loan fund to help small and medium-sized businesses, or SMEs, get back on their feet. But the owners of these companies did not greet the announcement as good news, saying banks that provide most of the capital under the program will not likely approve many SMEs for loans

  • By Tu Po-heng / STAFF REPORTER
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  The business owner collected wood bundles from his collapsed factory in the Nankang Industrial District (南崗工業區) in Nantou, where five machines had once turned the bundles into furniture.

  Like the many thousands left homeless after the Sept. 21 quake, the machines had also been given temporary quarter under a tent nearby.

  The factory owner and his three employees needed to return to their livelihood as soon as possi-ble, so partial production resumed within a week following the quake.

  

  This factory located in Feng Yuan City, Taichung County, made rivets and snap-fasteners before it was destroyed by the 921 earthquake. Although the owner wants to rebuild the factory on its original location, he is prohibited from doing so because fault lines are nearby. The owner hopes to swap his land for land owned by the government in the near future.

  PHOTO: TU PO-HENG, TAIPEI TIMES

  "If we just sat around waiting for government's help, we were doomed to close," the businessman said. "We had to resume production as soon as possible, or we would face not only fixed capital losses but also a loss in orders."

  But now, after the furniture factory owner and many others like him have put their businesses back on-line, the government has stepped in with help in the form of an NT$50 billion loan fund. And although many small business owners have consoled themselves with the thought that late is better than never, they don't pin their hopes on the plan.

  The reason: many business owners say banks won't qualify them for the aid.

  "We all want to get it, but we don't think we can get it," a shoe factory owner in Taichung County said.

  Helping hard-hit firms

  The furniture factory owner is just one of an estimated 200 small and medium-sized enterprise (SME) owners in the Nankang Industrial District, where businesses have been partially or entirely ruined by last month's quake.

  In the Taichung and Nantou areas, the two most affected areas, there are roughly 152,700 SMEs, and a report released by the Ministry of Economics Affairs (MOEA) yesterday showed that 40 percent of these suffered losses totaling US$300 million.

  Businesses located in Nantou's Nankang Industrial District and Taichung's Tali Industrial District (大里工業區) and Taiping Industrial District (太平工業區) were the hardest hit, where the majority of SMEs reported a loss of under US$30,000.

  According to the MOEA's definitions, SMEs are companies in the manufacturing sector that have fewer than 200 employees or capitalization of less than US$1.9 million. In the service industry, they are companies that have fewer than 50 employees or profits of less than US$2.5 million a year.

  SMEs account for 97 percent of Taiwan's businesses.

  The Ministry of Finance (MOF) on Oct. 20 announced an NT$50 billion pool for quake reconstruction loan aid to help SMEs. Nearly 30 banks agreed to participate.

  Applicants may apply for a loan with a 3 percent interest rate and borrow up to 80 percent of their total reconstruction expenses, with a cap set at NT$60 million.

  But while the terms sound attractive and practical, many owners of SMEs, though grateful, were not too hopeful.

  "The problem we are facing now is that our old loans have yet to be paid off," said Laio Kuan-hui (廖光輝), an owner of a media company in Taichung. "Our factories, that could have been used as collateral, are ruined, and we want to borrow more money from banks now."

  He added: "Banks are not charity groups, nor is the government. If you were a bank, would you want to lend us money?"

  Although SMEs are allowed to use rebuilt factories as collateral, Laio said some business owners are prohibited from building on their original sites because fault lines are nearby.

  In addition, another reason why banks may be reluctant to lend money is because the NT$50 billion fund is merely a bridge that closes the gap between the 3 percent interest rate offered by the government and the average 8 percent rate banks normally offer.

  In other words, nearly 75 percent of the loan money will come from a bank's own capital and the remaining 25 percent from the government fund.

  And with worsening bad loan ratios, many domestic banks, especially cooperative banks, have already cut back extending credit lines to local companies. The quake has made them less willing to lend money, some reason.

  "Banks won't lessen their credit criteria simply because the government provides 25 percent of the loan," the Nantou shoe factory owners said. "No matter if the interest rate is 3 percent or 8 percent, it would be the same to banks."

  Reluctant banks fear further losses

  Banks have their difficulties, too. An official at the Taiwan Cooper-ative Bank (台灣省合作金庫) said only old government-run banks will participate in the lending program.

  "Why? The credit risk is really very high," he said. "We do it because we have to comply with government policies."

  The official also said that many SMEs in Taiwan keep two balance sheets: one for tax purposes and the other for "internal use."

  "We have to be very careful, because we don't know which version we get," he said. "To be honest, in a situation like now, we prefer lending money to our old clients over new customers."

  Another reason why SMEs hold little hope for obtaining loans is that the damage they report to banks has to be identical to the damage reported to the Directorate General of Customs (DGC).

  "It's not a big secret that many SMEs in Taiwan are illegal factories or their tax reports don't tell the truth. For example, they have five machines, but they only report three in order to evade taxation," a Taichung screw factory owner said. "If they didn't report truthfully in the past, they are in trouble now."

  For example, a company cannot apply for a loan to replace five ruined machines when a smaller number was provided to the DGC on the prior year's tax report. The company wouldn't be able to claim tax rebates for the same reason.

  The ministry has recognized these problems, and one MOEA official acknowledged to the Taipei Times that even if up to NT$10 billion was used "it would be the best scenario."

  He said illegal SMEs deserve what is due them and they must either absorb their losses or go bankrupt.

  If it's the latter, unemployment will climb in the near future.

  Therefore, the official warned that the real effects of the quake on SMEs would be seen in the coming six months, as many SMEs may not survive or will run into financial difficulties.

  A construction company manager also said no SMEs will close their businesses now because they are afraid that closure could pressure up-stream and down-stream companies to collect outstanding debts.

  The official also said a more precise damage report will be issued after the DGC totals the losses supplied by SMEs in their tax reports.

  Even then, the actual losses may be larger, as many companies cannot list their real losses because of what was reported on prior tax claims.
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