OFFSHORE LOAN OF YOUR COMPANY IN VIET NAM – WHAT YOU NEED TO KNOW ABOUT THAT CROSS-BORDER FINANCING IN VIET NAM?

Capital is the circuit for enterprises to maintain production and business activities, securing resource on capital is an important factor for enterprises to develop and turn business ideas into reality. To maintain business operations during the current pandemic, without a reserve resource, businesses may be faced with a struggle and find it difficult to return to the market when the pandemic be controlled and the economy recovers. However, not all businesses have capital reserve or other channels to effectively circulate capital, one method to help businesses overcome the pandemic is to mobilize capital from overseas, and encouraging solutions with multiple modal approaches and large finance resources.

Offshore loan means borrowing credit from abroad through the signing and performance of loan agreements in the form of loan contracts, deferred payment purchase and sale contracts, loan entrustment contracts, and lease contracts, financing or issuing debt instruments by the Borrower. Foreign loans of businesses are regulated into two types by the State Bank of Vietnam: Loans guaranteed by the government and loans not guaranteed by the government.

Loans guaranteed by the government a loan that is guaranteed by the government to the lender for the performance of a repayment obligation if the borrower does not perform or does not fully perform the repayment obligation. However, this is a loan usually related to state-owned projects, which are decided by the government, or projects related to ODA capital and larger project, have importance to the economy and society, it is difficult for small and medium enterprises to access. Therefore, in this article, we only refer to loans that are not guaranteed by the Government.

Loans not guaranteed by the government are a loan obtained from the Borrower's foreign performance under the method of "self-borrowing, self-responsibility" to repay the debt with the foreign lender. This loan is a repayable amount, including the account principal and transactions arising from lending to foreign countries, paying the borrower by self by Vietnam’s law.

Loans can be short term (less than 1 year) or medium and long term (from 1 year or more), the loan currency is the foreign currency or Vietnam Dong depending on the lender and the borrower's model, for example: If the lender is a microfinance institution, it can be borrowed in Vietnam Dong, in some cases, it may be considered by the State Bank. Along with that, when applying for a loan, the enterprise should pay attention to the following issues:

First, it must meet the legal conditions corresponding to its loans. For example, the purpose of loans must be for the production and business activities, be licensed with the approval authority under relevant provisions of Vietnam’s law, and be by the license, scope of establishment, certificate of registration. Enterprise registration certificate, Investment registration certificate of the Borrower or of enterprises to which the Borrower directly contributes capital for investment. Next, the short-term borrower is not used for the target long-term purpose.

Second, a foreign loan agreement must be made in writing before the loan is released by Vietnam’s law.

Third, for loans that have collateral, the collateral must not be contrary to Vietnam's Law and the use shares, contributed capital of Vietnamese enterprises, or convertible bonds issued by a Vietnamese enterprise to accept non-residents being foreign lenders or relevant agencies must comply with the regulations on securities, on the foreign investor’s holding ratio at Vietnamese enterprises and/or other relevant provisions of law.

Fourth, about the investment registration certificate. For the borrower who has been granted an investment registration certificate, the balance of medium and long-term loans serving the project must not exceed the difference between the total investment capital and the contributed capital recorded in that investment registration certificate. For the borrower who has not been granted an investment registration certificate, the balance of medium and long-term loans must not exceed the total loan demand in the issued production and business plans or investment projects with approval authority as prescribed by law.

Thus, it is important for enterprises to find appropriate and effective loan sources, assess their ability to use and pay for those capital sources. The State Bank will be the intermediary agency to support and control this activity.

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