More financing options available for SMEs in Singapore
OUR local boys are learning to soar, and are making their mark overseas as the world becomes increasingly borderless. The SME community is a key pillar of Singapore's economy. It contributes 42 per cent of our GDP, and employs more than half the workforce.
The improved SME financing scene is due in part to increased lending by financial institutions as they recognise that SMEs were underserved.
Today, the top 500 SMEs in Singapore have increased their turnover by some 30 per cent to $13.5 billion, and almost doubled net profits to $630 million over the past five years. Singapore exports are rising, too, in some of the world's emerging markets, and SMEs have a large part to play in this. Bilateral trade between Singapore and China grew 27.1 per cent, from $67.1 billion in 2005 to $85.3 billion in 2006. Trade growth between Singapore and the UAE was also strong at 12.5 per cent, from $10.4 billion in 2005 to $11.7 billion in 2006. According to Standard Chartered estimates, about 60 per cent of medium enterprises perform transnational transactions every quarter.
Financiers have been quick to jump on the bandwagon and are positioning themselves as SME partners. The improved SME financing scene is due in part to increased lending by financial institutions as they recognise that SMEs were underserved.
Challenges facing the local boys
In the context of the globalised economy, SMEs are also facing strong challenges. While the number of trade links has increased globally from Asean to the EU, there is global financial integration and competition is fierce. SMEs have their hands full in keeping up both with innovation and technology change, as well as developing capabilities to expand into overseas markets.
While going regional or global is a key priority for many SMEs, a 2006 SME Development Survey by DP Information Group suggests that some of the top challenges cited by respondents are: the presence of strong overseas competition; lack of overseas business knowledge and contacts; and lack of external fund and manpower for overseas expansion.
Support from the big boys
It goes to show that SMEs with cohesive business models and strong value propositions, still need both governmental and financial support. And with that, they have a better chance of thriving in unchartered waters.
The challenges faced by SMEs have not been overlooked by the Singapore government. For example, to improve access to financing for SMEs, the government has established various schemes. One example is the Internationalisation Finance (IF) Scheme in which International Enterprise (IE) Singapore partners banks such as Standard Chartered to absorb 70 per cent of the approved loan loss if there is a default.
Ways to approach financing
Managing cash flow for overseas expansion plans is a common grouse among SMEs. They need trade and working capital, but remain at a standstill when banks that they apply to overseas cannot give them the financing they require. Here are three ways that SMEs can approach financing:
Look for a bank with comprehensive lending facilities
Most banks will lend SMEs the money in Singapore, usually based on the company's assets or relationship it has developed with the bank. However, problems may surface when technology systems at branches in the two countries are incompatible. All these factors may delay financing from coming in promptly, turning promising overseas ventures into a risky exercise. Look for banks with links to a working overseas network, and have a portfolio of comprehensive suite of trade facilities to meet the unique needs of SMEs.
Sound advice and insight
Another painful point among SMEs is that the relationship managers that they deal with in the foreign country do not understand the nature of the company's business well. Work with banks with international networks and centralised networking capabilities. This usually means that their relationship managers actually speak to each other cross borders. One should also work with financial institutions with dedicated SME branches and specially trained managers who intimately understand the needs of SMEs.
Since Standard Chartered started its transnational financing scheme, it has sent more than 10 relationship managers to key markets overseas. Clients have fed back that they were more comfortable dealing with someone of the same culture.
Business matching and networking
Finally, SMEs looking to expand overseas, but who have few links with foreign business partners should also consider financial institutions that provide links with business associates through networking sessions and other business matching events. To further add value to SME customers, many financial institutions also organise educational seminars to help them manage their cash flow more efficiently. These are great places to meet other like- minded SMEs, and build contacts.
Standard Chartered has a dedicated transnational scheme for SMEs. The bank boasts an international network that offers instant access across 24 countries, and relationship managers who actively communicate with each other for a customer's financing needs. Its lending suite includes trade and working capital, express trade facilities, and cross-straits financing capabilities. The bank also goes one step further with business matching and networking services.
Interested SMEs may call 1800 743 3000 to enquire about the scheme.
The writer is general manager, SME banking, Standard Chartered Bank, Singapore
