EU4Business provides Ukrainian SMEs with access to profitable loans

Focus, together with the Delegation of the European Union to Ukraine, is launching a special project on the opportunities for small and medium-sized enterprises that exist in our country thanks to the European Union programmes.

Фокус1.jpgFocus will tell the real stories of entrepreneurs who have received funding and gained the necessary knowledge to start and develop their own business. In addition, on the pages of the magazine there will appear stories about not only how to launch a business in Ukraine, but also how to conquer the European market thanks to the support of the EU.

Low availability of loans is one of the main factors hindering the development of small and medium-sized enterprises (SMEs) in Ukraine. The rates at which our entrepreneurs receive loans are much higher than those available to their European counterparts. Fortunately, the situation has recently begun to improve. Largely thanks to the partner assistance from the European Union. One of examples: there is EU4Business initiative in Ukraine. It is aimed, among other things, at providing access to financing for small and medium enterprises in Ukraine. The EU has signed contracts with the European Bank for Reconstruction and Development, the European Investment Bank and the German Development Bank/German-Ukrainian Fund. These financial institutions cooperate with seven Ukrainian banks. Through such a chain, affordable financing comes into the country, thanks to which SMEs can receive funds for development – part of the total loan or interest rate is compensated by the European partners of the project.

Focus, together with the Delegation of the European Union to Ukraine, offers the stories of three Ukrainian entrepreneurs, who, thanks to the low interest rate loans provided by their European partners, made their dreams come true.


Happiness is a new idea

Money for business. Volodymyr Dasiuk, Director of Zdorovo, believes that loans are important for business development

In Soviet times, Rytm plant operated in Chernihiv Oblast, where sausages were made for the entire USSR. But Rytm could not sustain the rhythm of life of the independent Ukraine. Its capacity faded away every year. In 2010, the plant floor was leased by Chernihiv company Zdorovo, which was engaged in the manufacture of canned meat. “The first four years were very difficult,” – Volodymyr Dasiuk, Director of Zdorovo, recalls. Old equipment required maintenance, it was extremely energy-intensive, with imperfect production technology, most of the processes were carried out using manual labor. As a result, the company operated intermittently, and in 2014, Zdorovo changed its owner.

“With the appearance of new owner, we have focused on the manufacture of the premium canned products,” – Dasiuk says. The production of such products requires a lot of manual labor. In addition, you can use only fresh, chilled, but not frozen meat.

New activities of the company assumed significant changes in technology. As Dasiuk explains, the GOSTs of the Soviet times were positively not suitable for the production of high-quality products. We had to start everything from scratch. For this purpose we needed additional premises and equipment. The company began to look closely at the premises, but it had no own funds for the purchase of a suitable plan floor. Commercial banks offered loans with an annual rate of 20-25%. Borrowing at such rates was too heavy for a small company.

But those who seek will find. One of the partners recommended paying attention to the banks that provide funding under EU4Business initiative. Negotiations began with ProCredit Bank, which finances SMEs under the German-Ukrainian Fund’s programme within the framework of EU4Business. At first, the company reacted to the proposal with caution – in the Chernihiv Oblast there were no bank branches, and there was almost nothing heard about the financial institution itself at Zdorovo. However, after weighing all the pros and cons, we took out a loan. Chernihiv company received UAH 2.6 million at 14% per annum. This rate was satisfactory for the company.

New horizons. Now Zdorovo is thinking about taking out a new loan for the construction of another production line

Credit funds covered about 60% of the cost of new premises of with an area of 5.6 thousand sq. m. But the building is only half the battle. The workshop previously belonged to the confectionery plant. The equipment that came with the premises was not suitable for the production of meat. Entrepreneurs again turned to the bank. A concessional loan of UAH 1.9 million was agreed in less than a week. With these funds we purchased new production lines, which allowed us to increase productivity and ensured the necessary level of technological infrastructure.

The use of credit funds proved to be justified. Thanks to well-thought-out investing of borrowings Zdorovo’s turnover began to show steady growth. From 2016, it grew up by 240%, to UAH 100 million. “Last year we began to work at full capacity, the repairs and redevelopments have ended,” – Volodymyr Dasiuk explains.

Upgrading of the production base made it possible to establish new distribution channels. About 25% of Zdorovo products account for public procurement. Energy-efficient equipment allows us to reduce production costs and win tenders. Chernihiv company supplies canned food for the army to medical and educational establishments. Cooperation has also been established with large retail chains that produce products under their own trademarks at the company’s facilities. Among our key customs are such chains as ATB-Market, AUCHAN, Brusnychka, Nash Krai, Rukavychka, Tavria V, FOZZY, EKO.

As of February 2019, the company has already repaid more than half the amount of loans. Now the company is thinking about taking out a new loan for the construction of another production line. It will allow bringing new products to the market, as well as to expand the geography of sales.

Haisynskyi Molokozavod has a similar story. Ukrainian business often treat loans with a pinch of salt, preferring to invest their own money in development. However, the dairy company’s case shows that accurate planning for the use of a loan may be more profitable than freezing of working capital.

Quality for the masses. Haisynskyi Molokozavod took out a loan of UAH 2.4 million for the purchase of milk separators

Having learned about the benefits of borrowing funds under EU4Business programme, Taras Osadchyi, Director of Haisynskyi Molokozavod, took out a loan of UAH 2.4 million for the purchase of milk separators. In addition, the company uses an overdraft from the bank. Extended financing has helped the plant to produce dairy products in accordance with European requirements and to win their positions in the highly competitive domestic market.


Under asphalt

“Want to understand how successful your business will be? Ask yourself a simple question: why do you personally need your products”, — Vitalii Koval, Director of VVV Montazh road construction company, shares his personal credo. For Koval himself, this not a question. He is a motorist and has no doubts that the country needs high-quality asphalt, a lot of high-quality asphalt.

Koval has been interested in asphalt production for a long time, and in 2016 his friends founded an asphalt plant. “We had bitumen. This is 50% of asphalt value. Creation of asphalt production has become a natural stage in business development,” – he explains.

A loan for growth. According to Vitalii Koval, Director of VVV Montazh, the turnover of the business increased from UAH 50 to 177 million per year.

Koval with partners invested UAH 60 million in the production. The plant was put into operation in 2017. VVV Montazh began to participate in tenders and win them, the first big orders appeared. As well as big problems. “We were lacking dump trucks for crushed stone. We usually leased them, but at the peak of the construction season there was an acute shortage of contractors. We decided to buy our own machinery in order not to depend on anyone,” – Koval says.

Began to look closely at the machinery. The businessmen liked Ford dump trucks most. The young company had neither free money, nor opportunity to wait. In 2018, a “Road Fund” became operational. 50% of excise receipts from fuel duties are directed to the reconstruction of highways. Therefore, the country is experiencing a boom of road works now. And this is a chance for a small company to contribute to such an important matter of concernment. “Almost everything can be done using one’s own money, but there is a risk to just miss an important point in time. So far, it’s really possible to break into the road works market, but after a couple of years, large international companies will share it among themselves,” – the businessman says.

Seize the opportunity. So far, it’s really possible to break into the road works market, but after a couple of years, large international companies will share it among themselves, Vitalii Koval believes.

In the Ford Representative Office, businessmen were advised to contact one of the banks operating under EU4Business initiative. They chose OTP Bank, which, together with the European Bank for Reconstruction and Development (EBRD), finances SMEs under EU4Business – EBRD Credit Line programme. The financial institution granted a loan of UAH 5.6 million, and the EBRD granted a non-repayable grant – 10% of the total loan amount.

Purchase of the machinery allowed VVV Montazh to increase its turnover more than three times over the year – from UAH 50 to 177 million per year. In 2019, Koval intends to at least double this amount. “Especially thanks to the decentralization and existence of amalgamated communities, we receive more and more orders,” – he rejoices. VVV Montazh plans to apply to the bank for another loan. Koval gives no further details yet. But if his predictions prove to be correct, with such business growth rates, he will be able to forget about his main problem — bad roads.


Source – Focus