A MAJORITY of small and medium-sized enterprises (SMEs) are not looking for funds from capital markets, over-the-counter (OTC) markets or private equity investments, a study has found.
This is despite efforts by the government and fund investors to provide alternative equity financing to Singapore SMEs, according to the latest SME Development Survey.
DP Information Group (DP Info), which conducted the study, said some 73 per cent of 1,206 SMEs said they are not looking to raise funds through initial public offerings (IPOs).
A similar number of firms also rejected the OTC market and private equity investments as sources of equity financing.
Among those respondents who wish or may consider those options, some 70 per cent of them seek more than $1 million while more than a quarter are looking beyond $5 million as additional capital injection.
Said Chen Yew Nah, managing director of DP Info: "There was an overheating of the IPO markets some years ago but this source of financing seems to have tapered down in the recent few years."
"The IPO associated costs - such as fees for underwriting and preparation of the prospectus - have largely been the deterrence."
DP Info believes that more SMEs also place greater caution on this channel to raise funding as they feel they need more information and education in this area.
Additionally, Ms Chen said the traditional forms of fund-raising through banks and other financial institutions have also been more accessible to SMEs and thus "most have still turned to traditional financing alternatives such as term loans, trade financing and hire purchasing".
DP Info also observed that start-ups and firms in an accelerating growth phase are more likely to seek equity financing from the capital and OTC markets or accept private equity investments.
For example, only 44 per cent of start-ups have no plans to tap on those sources, while 48 per cent of SMEs in an accelerating growth phase expressed the same sentiments.
DP Info also asked SMEs on their receptiveness and concerns regarding private equity investments.
Some 45 per cent of SMEs expressed no concerns about alternative equity financing, while only 18 per cent have raised concerns about loss of control in decision-making.
About 16 per cent of the respondents are wary of investors who are not "ready to wait for a reasonable period for a return", while 9 per cent of the firms pointed out that investors that demand high dividend will limit growth.
Noticeably, 59 per cent of SMEs which have been in operation for less than 10 years have no issue with private equity investments, while firms with between 10 and 30 years of operations are worried about loss of
decision-making control.
SMEs that have been in business for more than 30 years are most concerned about investors that want quick return on their investments.
On a positive note, a majority (79 per cent) of the SMEs are performing credit evaluation on their customers, illustrating the ability of SMEs to mitigate credit risks.
The most common form of credit evaluation is to assess customers' business profile, as practised by 70 per cent of the respondents.
This is followed by half who request customers to submit trade reference and two-fifths who evaluate the financial health of their customers by looking at their financial performance.
