HCMC businesses struggle to survive amid exhausted cash flow

Small- and medium-sized enterprises in Ho Chi Minh City, Vietnam’s southern economic hub, are looking at every way possible to survive as they are unable to access bank loans to cover employee salaries and operational costs.

Critical situation

Ngo Van Tung, director of a real estate brokerage company in District 3, said that since September 2022, his company had not recorded any transactions even though properties are still available for sale.

With limited cash reserves, he was only able to pay around 30 brokers and rent up to December.

"Every month, the company pays more than VND430 million ($18,000) in operational costs, but with no successful transactions there is no revenue. In addition, project investors do not have money to pay us commissions for previous transactions, so my company is now in a critical situation," Tung said.

In January, Tung's company did not have money to pay salaries and Lunar New Year (Tet) bonuses, forcing him to borrow money from friends, but they were in a similar situation. Bank loans were also out of reach because Tung couldn't meet collateral requirements amid limited credit room.

As a last solution, Tung pawned his car for VND500 million ($20,990) to pay his staff. “It was the only I could think of to help the company survive," he said.

Director of a construction company in Binh Tan district, has also been feeling the credit crunch.

The executive, who declined to be named, said that since October 2022, her company had faced many difficulties regarding cash flow for operations, wages and debt payments.

She has been struggling to find capital sources but all doors are closed. She turned to a banker who advised her to take out credit cards with a high limit, from VND200 to VND350 million ($14,690) each, from different banks.

"I have to pay fees for money withdrawn from the cards in the form of buying consumer goods," she said.

Le Thanh, owner of a pharmaceutical firm in District 10, had to take out hot loans from private financial service providers to pay debts and other operational expenses.

"I had my properties up for sale for four months, but there were no buyers. I could not get a bank loan because my real estate failed to meet legal conditions as collateral. Finally, I turned to the black market and now I have to pay interest of 20% per month,” he said.

"This was a situational solution I had to do at that time, otherwise my company might have shut down," Thanh added.

Difficulties tie up businesses

Chairman of a real estate developer in Binh Chanh district, said his company had not recorded any successful transactions for four months, while it had spent more than VND1.7 billion ($71,370) on salaries, taxes and office rent.

"I can’t stand it anymore and if this situation is prolonged, I may have to close my business in June. Recently I sent a request to the landlord for a payment postponement, and I've been forced to cut salaries," he said.

His company has faced cash flow difficulties investing heavily in new projects and paying fees for land use rights. Tightened credit and high lending interest rates have affected the sentiment among real estate buyers and no one is willing to put down money to buy a house.

"This is a common difficulty for all real estate businesses at present. Cash flow congestion is stifling the development of businesses like us," he said.

According to Ha Van Thien, deputy general director of Tran Anh Group, there are currently three main bottlenecks that are hindering the development and survival of businesses: cash flow, project legality and lending interest rates.

"Real estate businesses have to use money to buy land to develop projects and then sell products for cash. But now, they cannot sell their products so they do not have money. In addition, they also face delays addressing legal problems related to their projects," Thien noted.

Property firms have done everything possible to "tighten their belts" such as restructuring products and services and reducing personnel, but with the current situation, they really have no development direction.

"How the real estate market changes in the coming time and whether businesses can survive or not completely depends on how the above difficulties are removed in the next 1-2 months," he said.

Le Thanh added that besides real estate, other industries such as manufacturing and consumer goods have also seen cash flow dry up.

He proposed the State Bank of Vietnam and commercial banks allow enterprises to reschedule debts as well as facilitate new loans for them to maintain production and business.