IT is still early days in gauging the total effect of the business financing package offered by the government, but in the two weeks since the schemes became available, SMEs continue to report challenges at getting access to credit.
'Yes, I have heard of banks not willing to lend despite the change of schemes,' said Inderjit Singh, CEO of Infiniti Solutions Pte Ltd and deputy chairman of Action Community for Entrepreneurship. 'At the same time, processing times have lengthened and this is causing anxiety among companies and entrepreneurs.'
Falling property prices
It is not helped by the fact that value of property - frequently used as collateral - is falling.
'It is now harder for SMEs to use brick and mortar assets like property as collateral as the valuation of these assets are fluctuating,' said DP Information Group managing director Chen Yew Nah. 'Lenders are now looking at repayment and financial information as well as the future business prospects when evaluating the risk of lending to an SME.'
Included in the $2.3 billion financing package offered by the government is a new bridging loan programme that allows companies to access up to $500,000 in credit. Existing schemes have also been enhanced, to allow the government to share a greater proportion of the default risk with participating financial institutions (PFIs), with the hope of stimulating lending liquidity.
However, the participating financial institutions - which are mostly banks - remain the first stop for government-supported loan applications. And their evaluation criteria have not changed.
To be fair, banks have valid reasons to be more cautious than usual, given the credit tightening and liquidity crunch brought about by events in other parts of the world.
'At the end of the day, as in all loan applications, they have to look at ability of repayment,' said KPMG audit partner Barry Lee. 'It's not money there for you to spend. It must be sustainable, whether you go to Spring or the PFIs.'
Banks deny being averse to lending and said they remain committed to helping their SME customers. 'Our share of the SME market has grown against the backdrop of the credit crunch,' said DBS head of enterprise banking Edwin Khoo. 'In fact, we have grown our loan book by more than 25 per cent in 2008.'
Mr Singh and Ms Chen suggested that banks assess each company on its own merit and not generalise their action or potential according to their sectors. The interest rate charged could also be linked to a company's credit rating. 'This would show that the banks understand the individual needs of their SME customers and is a clear display of better customer relationship management,' said Ms Chen.
Meanwhile, SMEs are getting the sense that banks are already fully occupied with existing portfolios, and 'not actively looking at lending aggressively anywhere between Q1 and Q2 next year.'
'Since the banks really do have their hands full managing the current crisis, I believe this is the time for the government to come out with more generous and flexible measures which allow SMEs with proven track record and convincing business plans to test their mettle,' said Rajiv Singh, director of base metals supplier Synergic Industrial Materials & Services (SIMS).
He suggested that the administrators consider the volume of business instead of the number of employees as a qualifying criteria for the Bridging Loan Programme.
There are also calls to raise the loan quantum in the schemes. 'I wish for the bridging loan, currently capped at $500,000, to be raised to $3 million,' said Association of Small and Medium Enterprises president Lawrence Leow. 'The feedback I get is that half a million is a bit on the low side.'
ACE's Mr Singh also asked if government's share of the default risk in the bridging loan scheme can be increased to 80 per cent, from the current 50 per cent.
'The reason companies need bridging loans is that they are in a tight financial position,' he added. 'Otherwise they would be tapping other loans. Because they are in a tight position, banks will be wary to lend to them. And if we want to make this loan work, the government needs to signal that it is willing to lend even if the companies have weaker balance sheets and is prepared to back a failed loan, which is the principle of the risk sharing formula anyway. At 50 per cent, I feel the bridging loan will not effectively reach companies needing such a loan.'
More help expected
Others are expecting more help in lowering business costs - such as rental subsidies and tax cuts - and industry specific programmes.
'For example, the requirement of performance bonds for tenders which is currently at 5-10 per cent of contract value requires SMEs to provide 100 per cent cash collateral to the banks,' said Sujith Sivaram, CFO of ESCO Audio Visual Pte Ltd. 'Considering that pre-qualifications are required for participation in tenders and that tenders are only awarded after stringent evaluation of the tenderer, a shared risk approach between the purchasing entity, banks and the tenderer would go a long way in helping SMEs.'
ACE's Mr Singh, who is also an MP for Ang Mo Kio GRC, observed that there continues to be a gap in funding of growth companies. These are firms that have gone beyond the start-up phase, and have typically stretched their balance sheets and can no longer borrow from banks.
He added that ACE is working with the government agencies to iron out some of the 'administrative issues' that are making some existing schemes under-utilised. He admitted that the $2.3 billion package addressed some but not all of the needs of local firms, but at least 'these are things we could do quickly'.
Expectations are high that the government will come up with more comprehensive programmes in next month's Budget announcement. While all eyes are on the government, the message to help SMEs must filter down to all segments of the business eco-system as well. Considering that SMEs account for 95 per cent of all enterprises here, employ some 60 per cent of the workforce and generate about 45 per cent of Singapore's GDP, they are the backbone of the economy.
'Assistance can be provided by others involved in the business eco-system,' said Singapore Management University associate professor Tan Wee Liang, who specialises in SMEs and family businesses. 'It could take the form of advice, connections and actual assistance rendered free of charge. The tertiary institutions could through their enterprise centres help out through student consultant teams.'
This article was first published in The Business Times on December 16, 2008.
