Profits, all over Vietnam, are being eaten away by soaring gasoline, electricity and material prices.
Meanwhile, many businesses are finding it harder than ever to access bank loans, despite the State Bank of Vietnam's efforts to increase availability.
Nguyen Ton Quyen, secretary general of the Vietnam Timber and Forest Products Association, said banks often charge woodwork firms interest rate of some 20 percent per year.
"Interest rates are just too high," he said. "Meanwhile, other input costs are also on the rise. Many businesses won't be able to continue like this if the rates don't fall."
Commercial banks find themselves in a similar bind. Recently, they've attempted to mobilize capital by offering deposit interest rates of up to 14 percent. During the same period, they've offered loans at some 20 percent.
Despite the terrible rates, on offer, firms still find it hard to convince banks, struggling with short capital supplies, to issue the loans, Quyen said.
"Only 20-30 percent of our bank loan demands have been met," he said.
Capital shortage will continue to hinder firms from buying materials for production. This is most dangerous for woodwork exporters, as their delivery deadlines are normally in July, he said.
"Without enough materials for production, delivery may be delayed, and firms may be fined by trade partners due to contract violation," Quyen said. "Those fines tend to be very high and when they happen, businesses suffer losses."
The director of one plastic firm said it may halt certain production activities, if interest rates continue to remain as high as now.
"When interest rates are too high, the more firms produce, the bigger their losses can be," he said. "Thus, we must operate at a moderate pace to meet the demands of our core customers alone."
Nguyen Thai Hoc, chairman of the Vietnam Cashew Association, said that high interest rates have made Vietnamese firms less competitive than foreign producers, which enjoy cheaper loans.
Unable to pay high interest rates over a long period of time, local exporters often cannot hold out for higher prices. Instead, they have to export their products as soon as possible, he said.
Cao Sy Kiem, chairman of the Association of Small- and Medium-Sized Enterprises, said that accessing capital is now more challenging than ever for local firms. More than 30 percent small- and medium-sized enterprises could not access bank loans.
State Bank of Vietnam Governor Nguyen Van Giau has asked commercial banks to focus on providing loans to manufacturers, especially small- and medium-sized firms, and reduce loans to other businesses.
Quyen from the Vietnam Timber and Forest Products Association said prices on imported wood materials have risen by 20 percent, while gasoline and electricity price hikes have caused production costs to balloon.
"Our production cost has risen by 30 percent since last year," he said. "In fact, we are relying entirely on reserve materials, which were purchased in 2010, when prices were still low," he said. "Production costs may go up when we have to buy new materials at the new prices."
Vietnam increased electricity prices by 15.28 percent on March 1 and raised petroleum-product prices by as much as 15 percent last week.
Quyen said woodwork producers cannot increase their sales prices because their export contracts were signed last year.
He said the firms will continue to seek ways to deal with the difficulties.
"We have to seek new markets. Firms should look into tapping markets like China and India," he said. "That will take time though."