MR BERNIE Utchenik remembers a time not too long ago when 'everybody was happy to talk to Botak Jones'.
The founder of the steak and burger chain was besieged by bankers, offering him loans he says he did not even need.
'But when we asked for a top-up of our term loan recently, the response was that they're not entertaining loan applications at that moment.'
The change in behaviour of lenders over the last 12 months has vexed many SMEs desperate for cash to sustain their business operations. The credit crunch, a hangover from the fallout of financial sectors around the world, has spooked lenders into becoming more risk-averse, say many small and medium-sized enterprises (SME) here.
Last December, when Mr Utchenik needed to tap his credit line with a bank to buy more equipment to expand his business, it was too late. The financial crisis had already set in.
'The thing is, we were in the red at the time when we applied for the loan in 2007, and yet they offered us the loan plus the top-up option,' he said.
'Since then, our position has got stronger and we have a track record with the bank...But obviously they are using different qualifying criteria now.'
While evidence of SMEs having difficulties in getting bank loans remains largely anecdotal, Mr Utchenik's complaints were echoed by most SME bosses The Straits Times spoke to.
Mr Karl Moessmer, founder of Veith Tooling Supply - a local distributor of metal-stamping and mould-making components from Europe - said he had put together a comprehensive loan application.
'But I received a one-line e-mail reply that said: 'With a decline in turnover for the last six months, you do not qualify.' And this was just for a top-up,' he said.
Never mind that Mr Moessmer has been doing business with the same bank for the past 13 years. 'Before, they would come after you and offer you loans but now I can't even enter a discussion with the bank to share how I plan to make my business work. It's so ridiculous, it makes my blood boil,' he added.
Mr Daniel Nah, director of Harvest Productions, which deals in large-format printing, said he was asked to fill out a 40-page application for a $40,000 equipment loan. 'I was trying to see if I could get a loan so I can save my cash-flow for the hard times ahead, but when I was asked to fill up the 40 pages, I told myself to forget about it.'
Aside from the onerous loan application process, banks are now asking firms to provide more information such as financial statements that show details of specific business transactions and inventories, especially for those which trade extensively abroad.
'From those statements, we would better understand their businesses so as to work with them to structure the best possible options for their businesses,' explained a senior banker.
But according to Mr Kanwal Nain Sahney, managing director of Specvision, an IT distribution firm, most of those details were rarely required before the crisis.
'They will ask how you are selling the goods, where you are selling it to, whether business is slowing, whether the country you are selling to is affected adversely by the crisis,' he said.
During the peak of post-Sars business, between 2004 and 2007, lenders aggressively targeted SMEs, rolling out fast-approving and collateral-free term loans to nab these new clients.
Banks saw the SME sector as fast-growing and wanted a bigger piece of the SME lending pie. So they were noticeably more open to taking risks and granting loans.
One local bank was believed to have recruited almost an entire floor of staff just to acquire members of this emerging class of smaller clients, claiming they could help these underdogs succeed in a dog-eat-dog world.
The ties forged during boom time have perhaps led to the high expectations of SME bosses today, who now label the banks that have cut their credit lines fair-weather friends.
'In the past, bankers will call you not only to offer credit lines but also lines at more attractive terms if they knew others were matching their rates. But times have changed,' lamented Mr Sahney.
Still, some SME bosses recognise that the banks, to some extent, cannot help what they are doing.
The founder of local fashion chain Bysi, Mr Tan Yew Kiat, says he does not blame the banks and thinks it is only natural for them to be more cautious and demand a lot more information during the credit crunch.
Recent figures released by the Monetary Authority of Singapore also show that the growth of loans here corresponds strongly with the growth rate of gross domestic product (GDP).
When the economy expands, banks expand lending. But when the economy shrinks, banks also shrink the amount of loans they give out.
This is why companies have an important part to play in the process of raising cash in a downturn, says Mr Tan. 'If you are not transparent and have improper accounting, it will be tough for the banks or the Government to help,' he said.
Mr Tan recently managed to obtain a $500,000 bridging loan with some help from enterprise development agency Spring Singapore. He had to show a good case for the loan but in the end the total time it took for his loan to be approved was only between two to three weeks - which is the industry standard.
From easy loans to credit freeze
Industry insiders say that there were other, less obvious reasons behind the apparent reluctance of banks to lend in the months following the financial crisis. For one thing, December and January are when many senior bank officials - who ultimately sign off on loan applications - go on leave.
Relationship managers may also have hit their sales targets for last year, and put off facilitating loan applications temporarily in December until the new financial year kicked in.
Still, the Government is taking no chances. After all, over 160,000 SMEs call Singapore home, making up 99 per cent of the total number of businesses operating here.
They employ six out of every 10 workers and account for almost half of the total value-add in the national economy.
To help ease the credit flow to SMEs, the Government will fork out $2.3 billion in loans through an enhanced suite of business financing schemes run by banks.
The Government believes over 124,000 firms here stand to benefit.
Key aspects of the enhanced Government schemes include more money to help SMEs insure their loans against defaults, lowering interest rates of Government-backed loans by 1.25 percentage points and the Government taking a higher share of default risk of loans - by up to 80 per cent, with the rest taken on by the banks.
According to Spring, 30 loan applications and $5 million worth of funds have been approved and disbursed to firms since most of the new measures took effect on Dec 1.
Since the programme is in partnership with the banks, Singapore's lenders have been trying to get their back-end systems in place to administer the loans.
There were some delays - prompting further criticism of the scheme - but a person familiar with the matter maintains that banks here are 'working hard to get their act together'.
But there are still some grouses.
The 80-20 risk sharing factor, for example, remains a stickler for some SME bosses.
'It appears to me that banks are now even reluctant to take on the 20 per cent risk...because they are nearly declining all kinds of loan requests nowadays,' said Mr Moessmer.
This is why some are lobbying the Government to provide funding to SMEs directly, perhaps in the form of a new 'SME Bank' run by the authorities. And all eyes are on the upcoming Budget statement next week to see what other help the Government can provide.
For smaller firms on the brink of failure, an additional credit line can mean a new lease of life.
For those which just need working capital to continue to operate, it will give them a fighting chance to stay afloat and ride through the downturn.
'Orders are drying up a little, but then when you do get orders, you are unable to fund them because your credit lines are choked, so that's a double whammy for us,' said Mr Sahney.
For most, failure is never an option. They would either have to tap on company reserves or shareholder funds.
As Mr Kelvin Low, director of Pacific Xhibits International - a firm which designs and installs exhibition platforms - put it: 'Credit crisis or no credit crisis, for business-owners like us, the show must somehow go on.'
This article was first published in The Straits Times on January 13, 2009.
