Amendments to the Law on Support for small and medium enterprises: What do businesses need to seize opportunities

The Law on Support for small and medium enterprises No. 04/2017/QH14 after 8 years of implementation has contributed to the formation of the first legal framework for activities to support business groups accounting for more than 98% of Vietnamese enterprises[1]. However, in the face of rapid changes, capacity building for small and medium-sized enterprises ("SMEs") has become an urgent requirement. Therefore, the Ministry of Finance is consulting on the Draft Law on Amendments to the Law on SME Support ("Draft"), [2]in order to improve the mechanism to support SMEs in a more substantive and effective way.

The most important basis for determining whether an enterprise belongs to the supported group or not, to what extent it is supported and whether it meets the conditions for continuing to receive support or not is the total annual revenue.

1. Major changes in the new Draft

Criteria for determining SMEs are simpler, more transparent and more extensive

The draft is to change the criteria for identifying SMEs. According to current regulations, SMEs are determined based on many criteria: the average number of employees participating in social insurance annually, the total capital source or total revenue of the preceding year[3]. Meanwhile, the Draft is oriented to simplify the determination and prioritize the use of the criteria of total annual revenue to conveniently compare with tax, insurance and state management systems. Therefore, the most important basis for determining whether an enterprise belongs to the supported group or not, to what extent it is supported and whether it meets the conditions for continuing to receive support or not is the total annual revenue.

At the same time, the Draft expands the concept of subjects prioritized for applying support policies, including SMEs owned by people with disabilities and ethnic minorities; business enterprises that are sustainable, inclusive and apply ESG standards. This is a point that the policy to support SMEs is shifting in the direction associated with the goal of sustainable development. Businesses are not only evaluated by the size of revenue, the number of employees or total capital, but also by how they create value for society, the environment and the community. Moreover, the Draft aims to adopt the nature of business operations such as using labor in accordance with regulations, having environmentally friendly policies, emission control, traceability of goods, transparent internal governance, personal data protection and compliance with the law, etc. not just based on the content recorded in the referral profile.

Supporting SMEs in priority areas for development

The draft mentions mechanisms such as a sandbox for lending based on cash flows, value chains and intangible assets instead of relying solely on traditional collateral[4]; simplified accounting regime for micro-enterprises; responsibilities of localities and infrastructure investors in reserving a certain land area for SMEs to lease at preferential prices; access to surplus public assets (headquarters, factories) through transparency and support for shared digital platforms[5]. In fact, one of the practical difficulties of this group of businesses is not only the lack of business ideas but also the lack of collateral, lack of premises, lack of technology and lack of access to official resources. If properly institutionalized, this could be an important change for SMEs. This change will help SMEs improve their competitiveness by being associated with improving technological capacity, innovation and market participation. Overall, this policy shows that the Draft is shifting from a broad-based SME support model to a focused support associated with new growth drivers.

Developing an ecosystem to support SMEs

The draft orientation for the development of the SME support ecosystem in a more comprehensive direction instead of only adjusting each group of supporting subjects individually. The focus of the policy is to expand and clarify the role of actors in the ecosystem, including the State, enterprises, intermediary organizations, financial institutions, business associations, incubators, training institutions, and consultants. The draft considers these subjects as bridges between the State's policies and the actual needs of SMEs. Accordingly, local business associations, support organizations and focal agencies will be strengthened in coordinating, consulting, training and providing support services for businesses. This approach can create a better foundation for resource coordination, support service linkage, and improve the quality of SME support, while helping support policies to be put into practice more effectively, rather than being fragmented or overly dependent on individual agencies.

Innovating tools, methods and mechanisms to support SMEs

The draft also reorients the financial support method for businesses from "spending according to activities" to "spending according to results and outputs". As the process is digitized and data becomes the center, the receipt, approval, monitoring, disbursement, acceptance and evaluation of support effectiveness can be increasingly based on electronic data. This reduces reliance on manual processing, limits the lack of transparency, and makes it easier for businesses to track progress. The draft also emphasizes the requirement to digitize the entire SME support process, from registration, approval, implementation, monitoring, supervision to evaluation and information disclosure. Building an information platform to support SMEs and digital coordination mechanisms can help businesses access policies faster, while increasing transparency, accountability and efficiency of state management.

SMEs should study legal requirements, product standards and technical regulations in foreign markets, expand access to foreign capital, international partners and new distribution channels.

2. What Vietnamese businesses  do to grow

From the innovation points of the Draft, it can be seen that the support policy in the coming time will not only stop at general support but shift to conditional support, focused and associated with the actual development capacity of enterprises. Therefore, SMEs need to proactively prepare to seize the opportunities from these changes.

Firstly, review the conditions for SMEs and priority groups for support.

Enterprises need to re-examine the criteria of revenue, labor, capital, field of operation and ability to be in priority groups such as women-owned SMEs, enterprises employing disadvantaged workers, sustainable business enterprises, social impact enterprises, and ESG enterprises. Identifying the right target group will help businesses proactively access appropriate support programs as soon as the new policy is implemented.

Second, standardize finance, accounting, and business data to increase access to capital.

When  the Draft expands  the financial support mechanism in the direction of considering cash flows, data, value chains, intangible assets and assets formed in the future, SMEs need to be transparent in financial statements, complete business plans and manage operational data. This is an important condition for businesses to take advantage of opportunities from preferential credit.  credit guarantees, SME Development Fund as well as other financial instruments.

Third, build a roadmap for digital transformation, innovation and intellectual property protection.

The new policies place a heavy emphasis on technology, innovation, digital transformation, and intellectual property. Therefore, SMEs should soon assess their readiness, determine the need for technology application, standardize internal processes and protect assets such as trademarks, software, patents, trade secrets, new business models, and proactively implement digital transformation to apply technology corresponding to the above-mentioned contents. This will be the basis for businesses to access technology support programs, technology transfer and shared digital platforms.

Fourth, proactively upgrade capacity and participate in market expansion.

With the orientation of supporting SMEs to participate in e-commerce, logistics, trade promotion, public procurement, domestic and international supply chains, enterprises need to ensure product quality, certification, technical standards, traceability, capacity profiles and compliance capacity. At the same time, SMEs should study legal requirements, product standards and technical regulations in foreign markets, expand access to foreign capital, international partners and new distribution channels. This is a condition for SMEs to connect more effectively with large enterprises, FDI enterprises, export markets and public procurement programs.

Fifth, actively participate in the SME support ecosystem.

The draft emphasizes the role of the SME support ecosystem, including central and local focal state agencies, business associations, business support intermediaries, financial institutions, support funds, incubators, training institutions, consulting organizations and consultant networks. These are considered as subjects in the ecosystem. Therefore, businesses need to actively connect with these entities to have faster access to policy information, legal advice, management training, capital support, technology support, innovation and market expansion. Participation in the support ecosystem also helps SMEs avoid a discrete approach to policies, and at the same time increases their ability to choose the right support program that suits their needs and stages of development.

Overall, the amendment to the SME Support Law will open up many new opportunities for SMEs, but the effectiveness of access to these policies will depend significantly on the level of preparation and adaptation of each enterprise. In the coming period, SMEs should proactively standardize governance, financial transparency, build data transformation roadmaps, improve technological capacity and strengthen connections with the business support ecosystem. This is an important foundation for businesses to effectively access new policies and at the same time transform the new wind in the State's support policies to remove the label of small and medium-sized enterprises.