From March 15th, household businesses are no longer allowed to borrow from banks.

To obtain loans, household businesses must convert into enterprises or the head of the household must apply for the loan in their own name, because according to the new law, only individuals or legal entities are eligible to borrow capital.

According to the 2015 Civil Code, only legal entities and individuals are eligible to participate in civil relations. Therefore, the State Bank of Vietnam has added a regulation in Circular 39, recently issued, stipulating that borrowers at credit institutions must be legal entities or individuals, to comply with this Code. Consequently, from March 15th, entities that are not legal entities (such as business households, family households, cooperatives, and other organizations without legal personality) are no longer eligible to borrow capital.

Many small businesses will be unable to obtain bank loans under their own name unless they convert into formal enterprises. (Illustration: Hong Chau)

Previously, many banks disbursed capital for production and business purposes to households and individual business owners. With this new regulation, if a household wants to borrow, the individual who is the head of the household will have to sign the loan agreement and be responsible for repayment in their personal capacity. Typically, the interest rate...Borrowing on an individual basis will be treated as a consumer loan and could drive up the cost of capital.Additionally, also from March 15th, according to the new regulations in Circular 43, individuals can borrow consumer loans to finance their family's consumption purposes.

According to data from the Vietnam Chamber of Commerce and Industry (VCCI), Vietnam currently has over 5 million informal and formal business households, but none of these are yet registered enterprises. According to Mr. Vu Tien Loc, Chairman of the VCCI, the program to convert business households into enterprises must be a key program in achieving the goal of one million effectively operating enterprises by 2020.

The reason Vietnam has many small businesses, even those with a relatively large scale comparable to enterprises, is that these entities still avoid addressing issues related to tax policies and administrative procedures. Therefore, Mr. Vu Tien LocIt is argued that, in order to transform into a business model, administrative procedures for establishing and operating businesses must be simplified, especially for small and micro-sized enterprises. In addition, tax and credit support policies for these business households are also needed.

According to VNE