BEIJING, January 30 (AsianFin) – A tech startup’s chief executive officer told TMTPost that he was surprised when banks voluntarily approached him with loans. He had assumed only investment institutions were willing to channel funds to a company still in its nascent stage.
His experience is not alone. Actually many tech startups are being courted by banks with easy credit. All this stems from China’s Central Financial Work Conference in late October 2023, which highlighted the importance of financing for tech firms.
Subsequently, China’s central bank the People’s Bank of China, in conjunction with other departments, held a meeting, calling for the promotion of a comprehensive, multi-level financial service system for tech firms, including credit.
FreesFund’s founding partner Li Feng said that almost none of the tech start-ups he invested in before 2022 had ever received a bank loan before scaling up. However, since 2022, 30% of all the pre-Series B companies he invested in have obtained bank loans of various sizes. The collateral is intellectual property and technology rights, not fixed assets.
Bank Loans Shower Tech Firms
At a press conference of China’s State Council Information Office last Thursday, Li Mingxiao, Director of the Policy Research Department of the National Financial Regulatory Administration, said that by the end of 2023, the loan balance for tech enterprises had increased by 20.2% year-on-year.
Last Friday, China’s central bank released a report, saying that by the end of 2023, the balance of loans to small and medium-sized enterprises in science and technology was 2.45 trillion yuan, up 21.9% year-on-year. The balance of loans to high-tech enterprises was 13.64 trillion yuan, up 15.3% year-on-year.
Regulatory authorities have continuously issued detailed rules to guide financial institutions in serving technology-oriented enterprises.
According to the data recently released by the China National Intellectual Property Administration, the patent and trademark pledge financing amount reached 853.99 billion yuan in 2023, with a year-on-year increase of 75.4%.
It is important to note that among small and medium-sized enterprises, technology-based enterprises are currently the focus of bank credit funds.
New Risk Control Methods Needed
By traditional banking credit service standards, tech firms are not considered prime loan candidates.
The core reason is that the vast majority of small and micro science and technology enterprises cannot provide clear financial statements and qualified collateral.
For the loan risk control of science and innovation enterprises, some banks have made changes to adjust to the characteristics of such enterprises.
For example, the Tengfei Loan launched by the Shenzhen Branch of the People's Bank of China has innovations in credit granting models and interest rate settings.
In terms of credit, more attention is paid to indicators that reflect the value of technology-based enterprises, such as technology, intellectual property, and scientific research talent. In setting interest rates, the loan cost is linked to the enterprise's development results, balancing the risk premium over a longer period of financial services.
In summary, the Tengfei Loan attempts to benefit enterprises through flexible arrangements in interest rate pricing and interest collection in the early stage. After the enterprise's profitability increases, the bank will share the enterprise's development results, thus achieving a balance between overall loan income and risk.
The rating model is also being upgraded. A customer manager from a city commercial bank said that while serving an IoT enterprise, they monitored the enterprise's operational data in real-time before, during, and after the loan, grasped the enterprise's cash flow situation, and ensured the effectiveness of the assets.
The tolerance for non-performing loans is also increasing. The customer manager said that generally, the non-performing loan rate of banks is limited to around 1%, but for tech companies, especially small and medium-sized ones, the tolerance for non-performing loans is often raised to above 3%.
New Services From Banks
In addition to providing direct funds, banks are also offering other financial and non-financial services to tech firms.
Liang Huan, Assistant General Manager of the Science and Technology Finance Department at WeBank, said that in addition to offering science and technology loans, WeBank is trying to use non-financial services to help small and micro science and technology enterprises gain more resources.
For example, in terms of venture capital, WeBank has launched a platform to help science and technology enterprises understand the preferences, styles, and track records of venture capital institutions, and to accurately match them with suitable venture capital institutions. The bank is even cooperating with recruitment platforms to launch talent recruitment services for science and technology enterprises.
The development of the investment-loan linkage model is also accelerated. The investment-loan linkage model is a business model that integrates bank credit and equity investment.
Take China Minsheng Bank as an example, it has established several funds with its subsidiaries to provide customers with innovative products and services for investment-loan linkage.
"Under the current regulatory conditions, Chinese banks seem to face little obstacle in engaging in various types of science and technology finance," said Wang Jian, the chief financial industry analyst at Guosen Securities Economic Research Institute.
(Note: 1 yuan equals $0.14.)
(This article was first published on the TMTPost App. Author | Cai Pengcheng; Editor | Liu Yangxue)
