By Gabriel Chen

LOCAL firms, both big and small, cheered the string of initiatives announced yesterday by the Government to help get more loans flowing to them.

It comes at a time when they need all the credit they can get - and the onus is now on banks to start lending, they say.

The $5.8 billion Special Risk-Sharing Initiative unveiled by Finance Minister Tharman Shanmugaratnam yesterday included a broad range of measures to stimulate bank lending.

One key initiative involves tweaking the existing bridging loan programme.

This bridging loan - essentially for short-term funding purposes - is vital for cash-strapped firms as they can use it for regular costs such as rent and wages.

With the changes, firms will be able to secure more loans that they need, and potentially find that banks are more willing to lend to them.

The new bridging loan scheme will now cater to loans of up to a whopping $5 million, up from $500,000 currently.

The Government's share of risk on these loans will rise from 50 per cent to 80 per cent.

Mr Hauw Wee, managing director of Tuck Lee Ice, thinks the latest changes will encourage more risk-taking.

'This is good for firms. More entrepreneurs will be more willing to take risks, if they can get lending,' he said.

For those that need liquidity, the new scheme comes at a good time.

'We're coming to a situation where we may borrow and this comes in handy,' UST Technology director Lee Yoke Keng said.

Ms Lee said her firm, part of the semiconductor industry, might need as much as $2 million in working capital.

The rise in the loan amount is good news to her, but she is still worried that banks will remain defensive. 'Will banks still slam the door on me?' she asked.

Another potential borrower, Mr Michael Tien, chief executive of Atlas Sound & Vision, already has a $500,000 bridging loan approved under the scheme, but he has not received it yet.

Now, with the downturn rearing its ugly head, some customers are asking for 'delayed deliveries'.

What this essentially means is that he has to hold on to excess goods like audio systems and television sets now.

'Due to all the delays, we might need more funds to tide us over,' he said, adding that he hopes to secure the loans.

Still, some others were slightly disappointed. Ms Elim Chew, managing director and founder of trendy street-clothing chain 77th Street, said it would have been 'better' if the interest rates for the bridging loan had been reduced.

Currently, interest rates stand at at least 5 per cent a year.

The president of the Association of Small and Medium Enterprises, Mr Lawrence Leow, believes the revised bridging loan scheme will stimulate lending.

While banks were coy about whether they will start to lend more freely, they say that the higher bridging loan amount will benefit not just small firms, but also medium-sized businesses.

'As we expect a further increase to loan applications, we are committed to expending additional resources to further expedite the application process,' a DBS Bank spokesman said.

This article was first published in The Straits Times on January 23, 2009.