WHEN the Government said last month that it would be providing $2.3 billion in loans to help ease the credit flow to local businesses during the economic downturn, many in the local SME community were sceptical.
Not of the Government’s intention to help but simply because these smaller firms - whose perennial problem has always centred on financing - know how difficult it is to apply for a bank loan.
First, they have to meet with a banker - some say, the smaller the firm, the younger the banker - who will ask for a business plan, collaterals and other details like financial statements and anticipated cashflows channels.
After a few weeks, they either get the good news that their application has been approved or they hit a deadlock and don’t get the funds they need.
Depending on the end result, the entrepreneur may have to repeat the application cycle again, and again, and again, and that was during the “good old days” where Singapore was seeing annual economic growth of over 7 per cent.
Today, with Singapore’s economy possibly growing even lower than the offical forecast of 2.5 per cent for the year, the issue of banks being adverse to lending remains to be the crux of the problem for some businesses gearing up for an even tougher year ahead.
Yesterday, the Government again stepped up its efforts to help local businesses deal with the impending credit squeeze - this time by lowering interest rates of government-backed loans, and increasing its share of insurance premiums for loans.
In its second annoucement in as many months on helping businesses mitigate cashflow issues, the Government said the latest enhancements are aimed at lowering the cost of credit for businesses as part of an overall package to address the financing needs of local firms.
This comes on the back of the $2.3 billion worth in loans which the Government said that it will pump into the credit system to help local firms tide through this slowdown.
For some of the loans, the Government even said it would bear up to 80 per cent of default risk to encourage financial institutions not to hold back on lending.
One has to wonder why the Government had to go to such an extent - not once but twice in two months - if financial institutions here are indeed still accepting and approving loan applications, and this despite financial institutions constantly rejecting the notion that they have been tightening up on loans.
When news of the Government’s enhancements to existing business financing schemes first broke last month, one of the more prominent leaders in the Singapore SME circle appealed to banks to take a more proactive stance to lending.
“The question is whether the financial institutions are now willing to loosen credit with these new measures. Certainly we hope that the banks will be more willing to consider loan applications and to process loans more quickly,” said Mr Lawrence Leow, president of the Association of Small and Medium Enterprises.
And yesterday, after Senior Minister of State for Trade and Industry S. Iswaran introduced the two new enhancements to the schemes, Mr Leow again made the same appeal.
“The announcement to reduce interest rates will help businesses lower their borrowing costs...but I think the issue now is whether it will stimulate banks into lending money to companies,” said Mr Leow yesterday.
For now, evidence that SMEs are having difficulties in attaining banks loans, with or without Government-backing, remain largely anecdotal.
However, those who spend enough time on the ground with these smaller firms say it is early days yet, as far as the impact of the credit crunch on businesses here is concerned.
“Most will still have existing credit lines and loans which they obtained before the onset of the crisis. And with order books typically consolidated during 2006 and 2007 still in play, it may be too early to determine the depth of the credit crisis which SMEs face at this point in time,” said a veteran entrepreneur who spoke to me on condition of anonymity.
“Just wait till the first or second quarter in 2009 - that will be the true test of a company’s resilience and a banker’s loyalty to his customer,” he added with a wryly smile.
Read Francis Chan's full story "Business borrowing made cheaper" here.