Why financial enterprises can be good alternatives when our loan application gets rejected by commercial banks?
In the following article, we will explain the activity of financial enterprises, look deeper into how they differ from credit institutions in general and discuss why it is worth turning to a financial enterprise when commercial banks reject our loan application.
Hungary has a two-tier banking system; this means that the central bank is not in direct contact with the citizens and businesses. The task is performed by intermediate actors, including credit institutions (commercial banks, specialized and cooperative credit institutions) and financial enterprises. Both credit institutions and financial enterprises are supervised by the MNB (the Central Bank of Hungary), their activities and operations are subject to authorization. Even though financial enterprises are less known in Hungary, they have been stable contributors to the business financing market for more than 20 years.
LOAN PRODUCTS AVAILABLE AT HITELPONT:
MFB Business Financing Investment Loan
MFB Business Financing Working Capital Loan
At Hitelpont, we handle transactions with great flexibility, this way smaller companies and those who are in earlier corporate stages can have better chances at getting a loan. (Source: John Schnobrich, Unsplash)
What do financial enterprises do?
Financial enterprises usually engage in several activities, like credit and cash loans, financial leasing and guarantees. One of the biggest differences between credit institutions and financial enterprises lies in the collection of deposit, as financial enterprises are not entitled to maintaining their own bank account, therefore they cannot collect any deposit. However, banks provide a full range of services, including deposit collection.
The services financial enterprises are able to provide are defined in the Credit Institutions Act (Hpt.). Generally speaking, these enterprises are entitled to provide all kinds of financial services, except for deposit collection and account management – in case they obtain all necessary licenses.
There exist several different types of loans on the market, such as targeted lending, corporate lending (Hitelpont also operates in this field) leasing, factoring and other financial services specialized to niche markets. Typically, financial enterprises do not use their own resources to provide finances to SMEs, they are mostly dealing with refinanced loans instead.
A REFINANCED LOAN IS A TYPE OF LOAN WHICH IS REQUESTED FROM OTHER CREDIT INSTITUTIONS – SUCH AS MFB, MNB OR COMMERCIAL BANKS – AND FINANCIAL ENTERPRISES ARE ABLE TO PASS THESE LOANS ON TO SMES AT THEIR OWN RISK.
Currently, nearly 250 financial enterprises operate in Hungary, owning a total asset value of HUF 2 200 billion, from which HUF 1 890 billion are receivables – meaning that this was their overall loan portfolio in 2019.
Differences in administration between commercial banks and financial enterprises
In general, we can state that commercial banks have a wider range of customers, both in the retail and business sectors. It is, therefore, more beneficial for them to be present on the market with standardized products, they rely on a pre-established set of conditions when determining the eligibility of the client. Therefore, the products offered by commercial banks are less personalized, the lack of flexibility can also result in banks rejecting the loan application.
When applying for the NHP Hajrá Loan, these are the most frequent reasons why the loan application might get rejected:
- The company does not have 1-2 entire business years closed,
- Inadequate economical or financial rating,
- Insufficient turnover,
- Negative events that had been revealed during the company law examination
- Other remarks that can be problematic from a commercial bank’s perspective.
It is also possible that commercial banks reject the application for the NHP Hajrá Loan, simply because approving it is not beneficial for them and they usually end up offering a different, more expensive loan product. Turning to financial enterprises like Hitelpont can provide an effective solution for these companies, especially because the decision about the loan application is primarily made based on the quality of the collateral, and not on the company’s financial performance.
Financial enterprises have a more flexible approach to the transactions, making them good alternatives for those businesses, that have been unable to apply for loans at commercial banks. Start-ups or companies in early stages could also be eligible for loan products and may find favourable terms, even if their revenue from the previous years was not high enough. The loan products available at Hitelpont are subsidized loans, they can be good alternatives to boost the economic growth of the business thanks to their preferential interest rates.
In the current crisis, the most popular choice among businesses is the MFB Crisis Loan, which meets the conditions of the NHP Hajrá Loan. Domestic SMEs can apply for loans between HUF 1 million and HUF 150 million, with an annual fixed interest rate of 2.5%. In addition to that, thanks to the state guarantee, clients from higher-risk categories can also be financed.
The MFB Crisis Loan is only available through financial institutions, with more flexible administration and individual assessment, financial enterprises can provide loans to companies in difficult situations. (Source: Scott Graham, Unsplash)
The MFB Crisis Loan can be used for general investment purposes, purchasing tangible assets or machinery, financing current assets or liquidity. The fee of the state guarantee is an annual rate of 0.1%, meaning that the maximum interest rate and other fees cannot exceed 2.6% per year.
In case you are interested in any of our loan schemes, you can obtain more information by clicking on the Our Products button. On the bottom of all the loan product pages, you can find the loan calculator, which can be used to calculate the expected repayment installments. The loan application process can be initiated online, it is also possible to request a callback from one of our colleagues. Should you have any other questions or be interested in a loan product available at Hitelpont, please call our customer service directly at +36-(70)-654-2486 or reach out to us at one of our Contact details.
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