WHEN the construction industry started to pick up after a long slump, Francis Tan found himself in a dilemma.
The director of CK Supplies & Services - a sub-contractor involved in excavation and earth removal - needed more machinery to cope with the growing number of projects coming in. 'The market was booming and we wanted to catch up by expanding our business,' said Mr Tan.
Even with business rolling in, financing proved slightly tricky to come by. It did not help that the previous few years had been difficult for the construction industry as a whole.
Despite Mr Tan's 21-year-old firm having a turnover of more than more than $1 million last year, an increase from the $900,000 the year before, he found it difficult to get a loan for the purchase of the machinery he needed.
He went knocking on the doors of three banks and finance institutions, all of which were slow to respond - if at all. But that changed when he decided to apply for an OCBC Express Equipment and Machinery (E&M) Financing Loan.
The programme targets small-and-medium enterprise (SME) clients with a minimum six-month banking relationship with OCBC. It does not require collateral and provides for a loan quantum of up to $100,000 per application.
Until the end of July, the loan programme will charge a promotional flat rate of 2.88 per cent per annum.
'OCBC was a lot faster than other banks,' said Mr Tan. 'After I approached them, they responded in less than a week.'
The loan approval process was even speedier, taking roughly 24 hours. This one-day turnaround time for loan approval is one of the main highlights of the service.
What had set the service apart from the other banks was OCBC's flexibility when considering factors apart from the profitability of Mr Tan's business in previous years.
'What banks need to understand is that the construction industry is cyclical,' Mr Tan said. 'The financial documents that they are looking at will show the previous bad years even if the good years are ahead.'
Beyond just profits
In approving Mr Tan's loan, the bank took into consideration his existing relationship as an OCBC customer and his track record of prompt repayments on previous loans. Besides OCBC's swiftness and flexibility, Mr Tan was particularly impressed by the way his loan application was handled. 'The relationship manager I spoke to was very professional and took the trouble to explain the terms and conditions to me,' he said.
The two loans that Mr Tan took out through the E&M programme, totalling $70,000, enabled him to buy the excavators needed for his projects.
Already, the benefits of the loans are being reaped, with the machines being used on a construction site at Ubi Avenue, where Mr Tan spoke to BT last week. As a result, he expects his company to take on significantly more projects this year than the four it had in 2007.
Lauding OCBC's support for small businesses, Mr Tan plans to take another loan under the E&M programme this month. 'Construction is booming now and needs the support of banks,' he said. 'As most suppliers operate on a cash basis, contractors might not have the available cash to buy all the equipment. So the loan application process should be flexible enough to take that into account.'
On the SMEs' part, there are several things they can do the expedite the loan approval process, according to Mr Tan. 'Before applying, they should get all their documents ready and in order for submission, like their income statements, bank statements and documents showing proof of large contracts with clients,' he said.
SME owners should also bear in mind the criteria that banks use to assess their ability to finance a loan.
Tan Chor Sen, OCBC head of emerging business in enterprise banking, said: 'We look at our SME customers' track record, financial standing, their relationship with the bank when we extend financing to our customers as well as other relevant factors. We always try to meet our customers' needs.'
This article was first published in The Business Times on Jun 17, 2008
