Word: loan
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...Turned away by banks, Sichuan's budding entrepreneurial class must rely on unconventional lenders, including pawnbrokers and loan sharks, to meet its capital requirements. Liu Qingrong, for example, borrowed money from friends and family to set up a Chinese medicine factory in 1992. Within two years, her traditional remedies were outselling those produced by her biggest state-owned competitor by a margin of 5 to 1. But her rival, which was backed by local officials, still received every advantage, including governmental assistance to raise capital via a stock-market listing. "It was bitter medicine," Qingrong recalls...
...Despite competition, her 300-employee company has managed to expand, using its $10 million in assets to secure small loans from banks. But obtaining financing still challenges her creativity. In 2000 she bought two ailing state-run factories, borrowing heavily from a real estate developer she knew to fund the purchases. Such alliances sometimes involve dangerous trade-offs: last year Qingrong was obligated to guarantee a $200,000 loan made to one of her benefactors, accepting that she would be on the hook if it defaulted. "I was terrified," she says. "If we'd had to repay, we would have...
...quick $10,000 to meet expenses. He would be well advised to repay it fast because Jianjun charges interest rates of up to 5.7% a month. It's all legal and above board. Although regulators and law enforcement officials in the past have cracked down on underground lenders (loan sharks tend to use gangsters to collect unpaid debts), the government currently allows pawnshops to operate because without them, small-business owners would have almost nowhere else to turn. "Banks make it difficult and confusing to get a loan," Jianjun says with a smile. "Our business is booming...
...momentum. In addition to promoting lenders such as the C.C.C.B., Beijing this year is expected to raise the interest rates banks can charge. In January the country enacted a new law specifically to promote SMEs, in part by creating a massive fund to expand a nationwide network of loan-guarantee offices that, in effect, allows the government to co-sign loans to creditworthy companies. Similar loan-guarantee schemes have worked well in other countries. Wang Hailin, director of the policy department at the State Economic and Trade Commission, calls the program "one of the most practical measures taken in recent...
...state-owned enterprises are muscling in on the initiative. In Chengdu last year, a government-owned machine-tool company was saved from bankruptcy after local bureaucrats ordered one of the city's four credit-guarantee offices to back loans to the factory. Officials feared that if the company closed, laid-off workers would raise a fuss. The case is not an isolated incident. Yan Guosong, general manager of a Chengdu loan-guarantee agency, estimates that more than half of government-backed business loans are now going to state enterprises. "The central government created guarantees to help small businesses...