Vinnytsia Residents are Important. Benefits, Compensations and Loans for Business

Notes of the discussion “Vinnytsia. Business support during COVID crisis”

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“We often ask ourselves: «Should I stay in this business? Or should I change anything?».  It is difficult to find an answer. But as an entrepreneur, and now as a public authority, I can say what opportunities we have and how we can get out of a crisis,” – Andriy Pizhevskyi, the deputy of Vinnytsia city council.

Since November, VoxUkraine, in partnership with local media, has been holding 12 online meetings with communities of different Ukrainian cities on important topics of local self-government. The eleventh meeting was about how the local businesses survived quarantine and how entrepreneurs were supported in Vinnytsia. This meeting was held with the support of the outlet “Vezha”.

Maxim Martyanov, Director of the Department of Economy and Investment of Vinnytsia City Council, Andriy Pizhevskyi and Svitlana Yarova, deputies of Vinnytsia City Council, Oleksandr Pechalin, Chairman of the WALL Employers Association, Tetyana  Grushko, Deputy Head of micro, small and medium business of Vinnytsia Regional Department of Oschadbank JSC, and Ilona Sologub, CEO of Vox Ukraine, took part in the discussion.

The discussion was moderated by Yuliya Mincheva, the VoxUkraine project leader.

You can watch the discussion by the following link.

The main conclusions. Thanks to the Vinnytsia Residents Are Important program, entrepreneurs were able to survive quarantine more easily – they were provided with tax benefits, exempted of rent and land fees, compensated a single social security tax in case of providing employment. Most of these support instruments remain in the program for 2021. Even the entrepreneurs who had never taken out loans, used the 5-7-9% program thanks to the loan interest repayment instrument. Vinnytsya restaurateurs used the crisis as a growth point and reached a new level of cooperation with the local authorities.

Vinnytsia Residents Are Important Program and KhlibSil Business Association

A program of anti-crisis measures “Vinnytsia Residents Are Important” was set up with the support of citizens and business in Vinnytsya in May, 2020. Under the program micro, small and medium business was exempted from payment for land, tax on residential property, rent for the use of communal property, and private individuals of I and II groups were exempted from paying a single tax. As of January 2021, 10,000 entrepreneurs used the program privileges. Most of these support instruments remain in the anti-crisis program for 2021.

Maksym Martyanov noted that the City Council plans to expand the influence of such a unique support instrument as partial compensation of the single social contribution for newly created jobs – UAH 1,320 for each job. 13 entrepreneurs used this instrument in 2020. “This year we want to increase the number of entrepreneurs who use this type of support and thus can increase the number of jobs even during a difficult quarantine year. We actually support both business and people with the help of such an instrument”.

Oleksandr Pechalin told that, for example, the Vinnytsia restaurant business used the crisis as a growth point and reached the level of quality cooperation with local authorities. Entrepreneurs-restaurateurs of the city united in the KhlibSil business association during the crisis and were able to influence the decisions of local authorities: “The regional council took a decision  about the shops’ work hours from 10 am. We blocked this norm in just three days due to the fruitful cooperation, and our shops were able to work from 7 am during the COVID period, because it was very necessary for people who went to work”. Entrepreneurs created a telegram channel, and there was an operative communication with deputies of the city council and the deputy mayor. They also agreed that when the issue of business is considered at the session, representatives from the restaurant industry will be invited.

5-7-9%. Changes in the program and the main reasons of loan denials

The City Council has improved the procedure of partial compensation of interest on contracted loans for entrepreneurs during the quarantine period. Maksym Martyanov said that before now the entrepreneur had to have an increase of tax revenues to receive that compensation. And on the basis that increase, the amount of compensation for contracted loans was calculated by the formula. But now this compensation is calculated of the taxes actually paid. “This is the instrument by which we would like to work with the entrepreneurs, because unfortunately only 6 business entities have applied to us for compensation in 2020.”

The City Council is working with three banks – Oschadbank, Ukrgasbank, Kredobank by partial compensation payment programs. And Privatbank, Ukrsotsbank and Raiffeisen are being planned to be added to these three banks.  

Tetyana Grushko noted that the program of 5-7-9% in 2020 was used even by those entrepreneurs who had never taken out loans before. “The rates of 20% per annum were too difficult”. Why did only six entrepreneurs apply for the program? According to Grushko, there are two reasons: mistrust and financial ignorance. “This is more a question for individuals who sometimes do not want to be involved in the process, but want easy money, low interest rates and do not answer the various questions posed by the bank or Vinnytsya City Council.”

Grushko says that immediately after the startup, the program was more focused on investment goals, so that clients could expand their business. And during the quarantine in May, the entrepreneurs, who had suffered from quarantine restrictions, had the opportunity to get a subsidized loan. In total, the program was changed 4 times. “In the whole Ukraine, Oschadbank issued 1,250 loans worth UAH 2 billion out of 8,800 loans of the program. If to talk about Vinnytsia, there were 21 clients with a total sum of UAH 18 million 600 thousand”.

The main reason of the bank’s refusal to issue a loan is the credit history of a potential borrower. “Clients do not always understand banks. Some people think that a three-month delay in another bank is not so bad”.  The credit program of the Vinnytsia City Council is similar in terms of the 5-7-9% program – if a client defaults more than once, he leaves this program. After that he can get a loan only on the basic terms of bank lending. And it can be just as 13%, so 20%, and even 24% per annum. Banks also refuse to lend to startups. “Banks tried to finance startups, but more than 80% of such cases were non-repayment of loans”. Grushko notes that banks want to lend, but they suffer the credit risks of non-repayment and set certain conditions, so customers would also be responsible for their credit obligations. Usually obligations mean a business experience and a pledge.

We thank Kateryna Delas and Kyrylo Perevoshchykov, VoxCheck interns, for their help in preparing the article.

This event was organized as part of the ENGAGE Program, funded by the United States Agency for International Development (USAID) and implemented by Pact in Ukraine. The contents of this event are solely the responsibility of Pact and its partners and do not necessarily reflect the views of the United States Agency for International Development (USAID) or the United States Government.

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