By CHEW XIANG

Banks here have approved 30 applications for a total of $5 million in loans under recently enhanced government- backed funding schemes, according to interim data from Spring Singapore.

That is out of more than 140 applications received so far by participating financial institutions.

In November, the government said that it would be increasing the amount of loans that could be disbursed, relaxing eligibility criteria and taking on up to 80 per cent of the default risk for schemes targeted at small companies, such as the Local Enterprise Finance Scheme and a microloan programme.

So far, almost all of the approved loans have gone to small and medium-sized companies, according to Melvin Lee, Spring's deputy director of financing and incentives management. More than 700 inquiries have been received for the enhanced schemes and $804 million in government loans to SMEs have been committed so far this year, he said.

Mr Lee said that the enhancements 'are about helping good companies get through the bad times'.

'For those who had their commercial credit lines cut by their FIs, the government loan schemes now provide another option,' he said.

But SMEs that BT spoke to said that they still face long processing times, onerous conditions and are not told fully why they were turned down. 'Companies who are in genuine need of loans often do not get the financial support,' said Annie Chan, events director of Redbox Events.

Chong Thow Chuang, business development manager of Strategy Entertainment said that companies faced a 'chicken and egg problem'. Banks are only interested in lending when a company is doing well, and pull out when it isn't performing, he said.

Seah Hwee Kia, DBS vice-president for enterprise banking, said that banks consider the company's financials as well as its management when giving out loans. One reason applications get thrown out is that SMEs often do not provide enough information to banks for an accurate evaluation of the company, he said.

But it is as yet unclear whether the enhancements are helping to get funds to small companies, which need them the most. Redbox Events' Ms Chan said that she had tried to apply for a hire purchase loan through the micro loan programme, but was told that while the enhanced programme would facilitate lending, the bank still had to adhere to old procedures in deciding.

Justin Tham, director of USI Technologies said that Spring should make the final decision on loans. This could cut waiting times while shedding more light on the reasons applications get rejected, he said. USI applied for a micro loan two months ago but has yet to hear from the bank.

Another common bugbear was the combination of interest rates and high processing fees charged even for rejected applications. For instance, micro loans carry a 6.25 per cent interest rate, but a number of banks, such as DBS, United Overseas Bank, HSBC, OCBC Bank and Maybank, also charge between $500 and $1,000 to process each application.

Mr Lee said that Spring was working with its enterprise development centres to help SMEs with their loan applications, but said that the ultimate decision over who gets money and in what amount should remain with the banks.

'Even with the government taking on the bulk of the default risk, SMEs are and should still be subjected to credit evaluation by the participating financial institutions,' he said.

Additional reporting by Ang An Shing and Jonathan Gan.

This article was first published in The Business Times on December 19, 2008.