Degree of access to financing by companies in Romania

The limited access to financing sources is the problem facing today by a large number of Romanian companies. In order to elucidate the causes of the low rate of absorption of fundings, both, those offered by commercial banks and those offered by non-banking financial institutions (NBFI) and EU funding, the National Bank of Romania has made a survey of about 11,000 companies in the Romanian economy, of which 85% were SMEs (28% of micro, 26% of small enterprises, 28% of medium-sized companies, 15% of corporations and 2% of atypical SMEs ).

According to the survey made by the National Bank of Romania,  respondents’ opinions are highlighted regarding the following impediments:

  • pressing problems in doing business;
  • availability and evolution of funding sources;
  • the rate of success in accessing funding from banks and NBFIs and accessing European funds;
  • the relationship of firms with banks and NBFI.
  1. The most pressing problems of companies

According to the interviewed economic agents, the most pressing problems in their activity are: the implausibility of the fiscal environment, the high level of taxation, the competition and the production costs.

In 2018, the unpredictability of the tax environment and the impact of measures taken on investors are far more damaging than the level of taxes itself, as taxes could increase as easily as they were reduced when pressure on the budget increases. The inability to predict future economic movements of the government and the low degree of confidence in the current political class is a catalyst for the increase in the unpredictability of the tax system.

Production costs have increased considerably, which discourages entrepreneurs. A cause that has led to increased production costs was the increase of the minimum wage. Thus, labor costs increased by 14.7% in 2017 compared to 2016, reaching a value of 4 008 lei / employee.

Besides the high production costs, the availability of labor force has become one of the most pressing obstacles which the representatives of the Romanian business environment is facing. On SMEs, unfair competition and lack of demand have the greatest negative impact. Access to finance is a pressing issue for surveyed companies (66% of respondents). Companies that do not consider funding a problem are those in areas such as services and utilities.

The high level of taxation is the biggest impediment for companies in the agricultural sector, while for companies in the rest of the sectors of activity, the main problem is the unpredictability of the fiscal environment.

  1. The availability of financing sources for companies

Reinvestment of profit or sale of the patrimony assets are the most used sources of financing of companies with Romanian capital. Loans from shareholders or capital increases and commercial credit are also important sources of funding for surveyed companies. Companies do not choose a large extent on external funding sources, but those who opted for a loan from a commercial bank or NBFI, representing only 28% of respondents. Analyzing the destination of the absorbed funds, it is noticed that SMEs are directing the cash to build working capital (stocks, equipment) or to pay suppliers. Only 9% of SMEs used attracted funds from external sources in order to expand their activity, while firms in the agricultural sector being those that mostly use external finance to develop their businesses.

SMEs are characterized by high reluctance in terms of bank lending or NBFI (78% of respondents). 3% of SMEs that have used bank financing have received the refusal, while 19% have been accepted. The highest percentage of credit approval was reached by the agricultural sector.

  1. Access to European funds

The non-financial companies did not have the experience with the European funds in the development of the company’s activity, due to the complex structure of the European project calls. In spite of this, at sectoral level, agriculture stands out from the point of view of the development of the company’s activity using the European funds, pointing out that 13% of the companies applied for this form of financing, and 4% received approval.

  1. The relationship of companies with banks and NBFIs

Companies experienced an increase in the cost of financing, expressed both by interest rates and administration fees and other charges applicable to loans.

Among the major difficulties faced by non-financial firms in accessing finance from banks or NBFIs include requirements relating to the amount or type of collateral (most pressing problem levels SMEs 2017), the very high interest rates and fees (the most stringent problem to SMEs in 2018), contract terms and bureaucracy.

Conclusions

Analyzing the study, we can state that the main conclusions are:

  1. The financial indicators for which significant changes were recorded were labor costs.
  2. The most pressing problems faced by companies in their business are: the unpredictability of the tax environment, the high level of taxation, competition and production costs.
  3. Access to finance is not considered to be the biggest problem of the entrepreneurial environment.
  4. Reinvestment of profits or sale of assets in the patrimony remain the most used sources of company financing.
  5. Among the major difficulties encountered in accessing finance from banks or IFNs are the value or type of collateral, too high interest and commission rates, contractual clauses and bureaucracy.

AOAMP believes that numerous changes in the fiscal environment, as well as those in the labor market, lead to high unpredictability among the Romanian entrepreneurs and among the potential foreign investors. Changing the minimum wage has led to increased production costs, which in turn will generate a series of negative effects that will also affect citizens.

Concluding, the AOAMP appreciates the expansionary economic actions promoted so far in the economy at the same time, but considers it necessary to reorient them to the benefit of all parties involved, especially for the benefit of business people and simple citizens.

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