• Banking and SME relationship: A somber love story

Banking and SME relationship: A somber love story

Banking and SME relationship: A somber love story

26 Feb 2021

I am often invited to deliver talks.

My favourite is going to schools and chatting with students. Especially when they ask me smart questions at the end of my presentation; those questions surely put me on ‘cloud nine‘, every time.

I always try to be well prepared. I make an outline and write my speech, and I try to choose sharp, catchy, striking words and phrases, especially for the points that I really want to get across (and now I do the same for my articles).

Usually, the topics that I am asked to talk about or that I am thought to be knowledgeable about are entrepreneurship, SMEs, vocational education, cuisine or sports. And occasionally, collections.

Well, these are the subjects I have dabbled with the most throughout my life.

The topics that have the strongest appeal are entrepreneurship and SMEs.

Strangely enough, when these are the topics, it all comes down to finding funds.

Do I think finding funds as a concern is justified? Yes and no.

Let me elaborate…

Yes: Because there is always a need for financial support for an idea to come to fruition.

No: Because, I am a true believer of ‘once you have an idea, a passion, then finding money is easy.’

Let me get to the point… My topic today is how can SMEs find money or why can they not?

I remember years ago when I was setting up the Culinary Arts Academy (MSA), a banker friend (from the head office) said, “Your project is very unusual and creative, we are a bank that commends SMEs, and we would be very pleased if you shared your ideas about SMEs and SME banking” and asked me to make a presentation at their meeting.

I guess he thought I was going to say good things.

Actually, I’m someone whose relationship with money is quite limited. I have no control over how it arrives, how it departs, how it is accumulated or how it is invested.

Throughout my 30-year career, I have always been an independent entrepreneur and business founder. I still am, and I continue to set up businesses.

My father, who graduated from the University of Illinois in 1952, was one of the very few international contractors in Turkey at the time. He completed a large portion of the Iraq-Turkey Oil Pipeline as Mannesmann’s subcontractor. I remember not seeing my father for months on end; remember waiting by the telephone for days with my mother just to be able to talk to him. Perhaps that’s the reason for my aversion to construction site work and machinery.

First bankruptcy

I founded my first business when I was 21. I returned from the States in 1989, and while I was thinking about what to do because ‘I didn’t want to’ go into the family business—I set up an automobile dealership that focused on customer satisfaction, based on the business model I had seen in America, in the house on the high street in Levent, which had belonged to my grandmother who had passed away when I was away.

After a few years, my automobile adventure, which started with the Japanese Suzuki dealership, continued with a different brand and a different culture, when the French came to me and said “You are one of the best-selling dealers in Istanbul, why don’t we make you a Peugeot dealer, it’s your only competition anyway”.

I took a loan (with collateral), I obtained a letter of guarantee (with collateral), and until 1994, and my dealership always had good sales figures. In April ‘94, just as I was thinking how well the year had been and how I deserved a vacation, the economic crisis hit and I lost all the savings of the earlier 3-4 years and had to dispose of all the cars I had in stock.

This was my first bankruptcy.

Once I got over the grievance, I had already met the late Tuğrul Şavkay, started to take an interest in the food and beverage industry, and had already taken on loans and opened our first restaurant together within six months. Within a year, there were two restaurants. Things were going great.

When the restaurant’s landlord went bust, dear Tuğrul was disheartened.

Second bankruptcy

I was alone now. I had reasonable savings. I had to make something better, different and special. 200 thousand dollars from my own savings, 300 thousand dollars from a bank loan in addition to collaterals and more, I opened my restaurant in Nişantaşı, for 500 thousand dollars, and it was one of a kind in Turkey then (and now) in terms of infrastructure and beyond.

The day after I opened the restaurant, the second economic crisis hit, and I had to complete the leasing payments which I had started at 620 thousand liras for 10 thousand 500 dollars, at 1 million 500 thousand liras for that same 10 thousand 500 dollars in the following months.

And this was my second bankruptcy.

There have been 16 Turkish states in history, and all but one has disappeared, and whether this is a success or not is debated often. Based on this example, please decide whether it is something to be appreciated that I have established company after company, continuously keeping my entrepreneurial spirit alive during the last 30 years.

This is my story. But not everyone is as lucky as me, to have a couple of real estate properties at the ready, to be able to take loans, to try, try and try some more, but also be tried just as often.

At the time, there weren’t any angel investors, venture capitals, private equities, and etc.; these are all new concepts (and even if they existed, whether they would work for me is another story).

How banks act when one needs money…

Now let me describe to you the relationship between banks in Turkey and SMEs, and how banks respond when there is a need for money from my own experience both what I have experienced at MSA from its incubation to its establishment and progress and other similar examples that I’ve witnessed throughout the years.

Of course, what I will disclose will mainly be focused on ‘small businesses and banking’, but I know and follow closely medium-sized businesses that also have the same problems.

First of all, let me be clear; banks’ love story with SMEs is a cyclical one. So, the business model of those businesses that we call banks is essentially selling money based on pledged assets or other similar collaterals.

Their motto: We stand by SMEs

Its translation: You are as big as your collateral

The three responses I could muster

Don’t be fooled by those bank advertisements that claim ‘We are with you’ for SMEs. We should ask ‘Why would a bank stand with SMEs or when would a bank be with SMEs?’

There are three answers I could find.

1- The economy is in a good state, the growth rate is high, the bank has idle funds and as a result of the high growth rate, the bank’s appetite for risk is also high.

2- The state has provided subsidies or guarantees for loans to be offered to SMEs, which partly takes care of the bank, and the rest is already guaranteed by you with your collaterals or other similar indemnities.

3- As a matter of fact, banks’ love for SMEs is ‘purely emotional’. SMEs are valuable for banks because they get paid more interest and more commissions from their transactions with SMEs, and similarly make more profit from them compared to when they offer loans to large companies because SMEs have limited bargaining power and are almost always low in cash.

Except for these three (or the fourth and fifth that I could not think of), all that glitters is not gold when it comes to SMEs.

You might say what can the bank do? Providing funds for an idea isn’t part of the remit of a bank, there are venture capital funds, angel investors and private equity funds for that.

Yes, but those don’t suit SMEs, that is more for entrepreneurs. If you are an SME, even if you have potential, you can rarely go knocking on the doors of angel investors. Besides, how many people can reach those investors in Turkey, and how? That’s also a significant problem.

Also, this trio (funds, investors and private equity) naturally wants to be a partner in the business, they want to be involved, and to see rapid growth, rapid profit and an option for a rapid exit.

Getting investors might be the right strategy for entrepreneurs who believe that they can grow their businesses quickly and create a solid return on investment for their backers.

However, one should never forget that getting investment equals getting partners, and it also means that you should accept the fact that your investor is going to meddle in your business.

Now that’s a pickle… Many entrepreneurs and SMEs have a common problem: what if they don’t want a partner? Must they share their idea, effort, and their livelihood?

The man or woman wants to do the thing he/she believes in alone, he/she doesn’t want a partner, doesn’t want to sell, and doesn’t want any meddlers. What are we going to do now?

Well, then you are back to square one with the banks who advertise: ‘We stand by SMEs’.

Now, let’s see: What is an SME?

The entities you call SMEs are either small or medium-size private enterprises selling goods and services, or small companies and workshops with a small number of partners. Most are first-generation small ventures with a 10-15 year history.

These companies’ savings are close to none, as they chronically suffer from financial difficulties. They have no depth and are precarious by nature. Their ability to withstand economic crises is also very limited. They always get their share from the unsurprisingly periodic crises that hit the Turkish economy every four to five years. Thousands of SMEs are forced to close down with each crisis. They are the first to be jettisoned as it were…

When trouble hits, they do the only thing they can, which is to sell real estate or gold, go back to their mothers and fathers or sift through their sock drawers. They try to solve their financial problems with their own resources.

There are also positive sides to being an SME. Since they are self-owned, they are much more flexible; they can make decisions and act upon them quickly. Their manufacturing and operating costs are also lower than in large companies. Thus, they are better equipped to be competitive. Often one can witness the unique creativity and determination of the Turkish people when one observes SMEs during times of difficulty.

So what are SMEs for banks; now let’s consider that.

I had said that it is cyclical…

While there are periods when banks earn money from treasury operations and high inflation, there are also times when profits on treasury operations drop drastically and SMEs and other small businesses become lucrative options for banks. Good SMEs are especially valuable and make excellent, reputable clients.

Banks that say, “Why should I deal with SMEs” one period would start chasing them, thinking about their needs and advertise accordingly in another period.

And it is at this very moment, that I think the troubling part begins, and the credit relations that form the foundation of the SME-bank axis can never be settled on healthy ground.

Most SMEs don’t have a proper action plan. Business intelligence is limited for many SMEs, there are no records, no accounts, and moreover when something goes wrong, making collections is difficult. They could have a turnover of 500 thousand liras, but you can’t even find 50 thousand liras in their books. You cannot foreclose; you cannot get hold of them if they go bankrupt (the perils of the legal system).

SMEs have always been a headache for banks. It’s an age-old story. Perhaps it’s because of the system and the particular conditions of the country.

You say ‘I am going to the moon’ and they ask for a copy of your title deed

After all, this system does not work. You go to a bank in Turkey, and say, “I have an amazing project, I’m transforming old transistor radios into a space shuttle, I will be going to the moon next year, and I need some money to make this happen”, and they would ask for your company’s paperwork for the past million years, the previous month’s gas, water and electricity bills, as well as your title deeds. They will ask all kinds of questions, except for any questions about your ‘going to the moon’ project.

The project and the idea are of no importance to the bank. Ideas are not discussed with sincerity at any stage of the process. Moreover, the middle managers, who are responsible for approving the loan, want to secure themselves by putting a vicious pledge on the borrower’s assets to avoid risk. Thus many projects and potentially great ideas are put to rest because of financial strains.

This is the conclusion I really wanted to reach: they are put to rest.

Many projects and possibly many wonderful ideas in Turkey are put to rest because of lack of funds or they don’t even begin. That’s a sort of death, isn’t it?

What should happen

What should happen instead?

Here we go:

When you say “I am building a machine, and people will travel ten steps in one”, the other side should have an expert who can evaluate this, conduct a feasibility study, and perhaps offer guidance to the entrepreneur or SME if there is a need. If and when the project is found valuable, the idea should be embraced, gaining value as it advances.

In this way, the SME will be supported while the other party will earn the money it deserves.

As a result, the country will prosper, a new business will be established or developed, a new area of employment will be created or expanded, and a small or large contribution will be made to the economy accordingly.

One should not forget that during the 1980s, the companies that made up Nasdaq including Microsoft, Dell and Apple all fit the definition of an SME.

In short:

Normally the reason why banks give loans is to provide support to people and companies and, of course, to earn money as it is their right. However, banks in our country make money at the expense of people, burdening them financially, and consider this a legitimate act.

Of course, I am not accusing banks for playing safe or for making money.

But I think that this puts the much-advertised SME-bank relationship at an impasse.

What I’m trying to say is that banks in Turkey are unable to fill this gap. This much is clear.

Whereas, in Europe, if the bank likes your business plan, they hand out a loan without collateral. If they don’t like it, of course, they won’t (I will offer a solution based on this).

You can provide as many title deeds and collaterals as you wish, but unless the company’s business plan and balance sheet are considered satisfactory for repayment of a loan, no credits will be offered according to the general banking rules and regulations in Europe.

The bank will not say, “Your balance sheet and business plan are insufficient, but if you are resolute when you say ‘I will pay’, give us a real estate collateral and we will give you a loan” (In any case, offering credit for real estate collaterals is defined as a ‘mortgage’, and this is a model designed to make people property owners be it a house or a business).


It is a pity that although SMEs make up such a large percentage of the economy, financing options available to them are so limited.

Let’s see:

The European economy is very strong and one—and possibly the most important—reason for this strength is SMEs. European governments support SMEs and value the existence of 25 million SMEs and their employees who generate taxes and add vitality to the economy. See

Solution notes

The author’s solution notes:

– If the government reviews the value of SMEs and determines a clear cut and precise criteria to support banks, the banking sector can establish a department for SMEs that is similar to their “project finance” departments used for larger loans. But the state should not do this cyclically, but as a sustainable service so that the banks do in fact establish these departments and so that the money does indeed reach the correct hands for much-needed support (Take note, this last sentence contains a very important detail).

– In addition to the state, the banking system should also get its act together, and step out of the “collateral banking” bottleneck, and rise to the level of “project finance banking”.

– In many countries around the world, there are tax benefits and different types of borrowing options for SMEs; these examples can be implemented and even be improved on.

– I believe that the Small and Medium Industries Development Organization (KOSGEB) and similar organizations (if any) should restructure themselves according to the new realities.

Author’s (judge not, lest ye be judged) note:

SMEs should pick themselves up, dust themselves off and see how they can best adapt to the changing conditions of the world, be it digitally or in an analogue manner.