By CHEN HUIFEN

The evidence may be anecdotal, but the rumblings from the ground appear to echo what many already suspect: small and medium enterprises (SMEs) are finding it difficult to obtain credit from banks, despite the government's efforts to unclog funding lines.

To get a sense of the situation facing SMEs, The Business Times recently emailed a questionnaire to the owners of such outfits. Fifteen of them agreed to share their thoughts and provide insights into their own situation. The results, while revealing, are not encouraging.

Most of the 15 acknowledged they had experienced credit tightening.

Five of those polled described the degree of credit tightening as 'severe', four said it was 'moderate' and another four said it is 'slight'. Two did not comment on this question.

This confirms the problems that SMEs have in laying their hands on credit, despite the government announcing a $2.3 billion scheme that will see it share a greater proportion of the lending risk with banks.

Five of the 15 companies told BT that they had seen the size of their existing credit limits reduced, while another four appeared convinced that banks are no longer approving new lines of credit.

'For smaller credit lines of under $1 million, or if they were structured lines and were managed properly in the past, the banks have not taken any action yet,' said K N Sahney, managing director of Specvision Holdings Pte Ltd. 'However, for larger credit lines most of the banks have reduced the exposure by 20-30 per cent. Very few banks have taken drastic action (in which) total limits have been withdrawn. This has been more specific to the electronic industry as we were told, but I personally believe that most sectors have been affected.'

While the situation is still manageable, some have expressed fears that it could worsen in the months ahead. Many have been forced to take a defensive approach in managing their daily operations, such as monitoring debtors more diligently and postponing expansion plans.

'We are a rental company and renting out all sorts of machinery and equipment to industries like marine, offshore, construction and so forth,' said one SME owner. 'Our income's growth is directly proportionate to our fleet's size and thus our income will be affected unless we are able to expand our fleet's size through financing.

'Due to the current difficult situation with credit access, we have been forced to stop expanding our fleet's size and tried to cope the market's demand with our existing fleet.'

Another SME in the healthcare industry said although the bank it deals with did not give an outright rejection to a new credit line request, it was advised to defer an overseas project.

'They just said that there would be delays in the approval process, even though we've had a long-standing banking relationship and very low debt,' said the CEO of the firm.

Four of the respondents said they are reviewing their credit terms with partners. An electronics distributor has negotiated for higher discounts from suppliers in return for cash payment. At a trading firm, the founder has widened the network of banks that it does business with, while other companies are either looking at reducing costs or working harder to generate sales and collections to preserve operational liquidity.

Apart from a tightening of credit, two companies also experienced higher borrowing costs. One noticed that banks are switching from Sibor/Libor plus spread to charging cost of funds. This could increase the cost of financing by a double digit-basis points, leading to a squeeze on net profit margins.

Among those who use letters of credit (LCs) for their international business, only two have had trouble getting them approved or honoured. One has been told to pledge assets or deposits in order to have LCs issued.

With the exception of one, all of those polled have heard of the government's credit risk-sharing financing schemes offered by Spring Singapore. Only four have had experience using the schemes, and two are thinking of applying.

The rest either said they do not need to tap on those schemes yet or find them unsuitable for their requirements.

Chan Wai Yin, chairman of Silicon Application Pte Ltd, said he will not use it although his business qualifies for the scheme.

He added: 'The rate as charged is not as attractive as what we are getting. Understand it is 6.25 per cent. It is still okay to pay that rate provided it is available when we need it.'

He suggested that the scheme be enhanced to work like a credit line instead of an instant loan, so that 'when we need to use it, we can do so'.

Spring said it is looking into the feedback received.

This article was first published in The Business Times on December 29, 2008.