Relief measures offer respite but banks can do more: SMEs

Singapore

SMALL and medium-sized enterprises (SMEs) are now weighing the cost of taking up loans or deferring existing payments as they add to future obligations, even as they get some breathing room to manage their cashflow on the back of measures announced by the Monetary Authority of Singapore (MAS) on Tuesday.

Despite this, some SMEs told The Business Times that they fear falling through the cracks due to their size and lack of track record with the banks, while others are waiting to see if interest rates will go down further before they decide on their next step.

Businesses also proposed alternative ways that banks can help, which include the removal of personal guarantees as well as unlocking SMEs' cash by doing away with earmarked amounts tagged to the usage of credit card facilities.

Ryan Chioh, managing director of online florist FarEastFlora.com, is among the SME chiefs who noted that while the temporary relief offered by banks can help those urgently strapped for cash, their "debts will snowball" as a result.

From April 6, qualifying SMEs can opt to pause their principal payments on their secured term loans till Dec 31, 2020. More than S$40 billion of secured borrowings held by SMEs should qualify for such a deferment.

Besides deferring secured term loans, banks and finance companies are also expected to work with SME customers to adjust repayment schedules for other types of loan facilities.

Before the announcement on Tuesday, Mr Chioh was already in early discussions with his bankers on the possibility of interest deferment for loans in the scenario where the business needs it.

"It will be an option to consider when the time comes," he said. "If we can still make our payments without affecting operating cashflow, we don't need to incur additional costs as there is interest on the deferred capital."

So far, its online business has remained steady, but its wholesale business has seen a drop in sales of around 20 to 30 per cent. Its parent company Far East Flora has been in business since 1965.

As for the potential lowering of interest rates through the new MAS Singdollar facility, Mr Chioh believes that "any effort made to reduce the cost of running a business, especially in this climate, is welcomed".

"If interest rates can drop to 2.5 per cent, I think more SMEs will take up the option and give themselves a fighting chance," he said.

Similarly, Poh Shih Yin, director of food manufacturer Seng Hua Hng Foodstuff (known for its Camel Nuts brand) believes that the lowering of interest rates will help, even as she is personally "not too keen" on the deferment of principal payments.

"What worries me is the rolling effect of the interest on the principal amount," she said. "If the principal doesn't get reduced, it just means that companies end up paying more interest."

The family business, with a history of more than 40 years, currently does not have existing loan facilities with banks. "(In my) previous dealings with financial institutions, they are largely fair weather friends who lend to us when we are doing well, and call on loans when we are not," noted Ms Poh.

SMEs also expressed concerns that they will not get access to lifelines from the banks at this crucial point if criteria remains strict.

Lawrence Chai, founder and managing director of accounting and compliance consultancy 3E Accounting, said that while these support measures were a boost to his firm, there is little relief for his clients which have smaller operating revenues.

"We have tried to help really small businesses apply for the working capital loan, but many did not qualify because their revenues or profits did not meet the banks' thresholds," he said, urging banks to exercise flexibility to lend smaller firms a hand amid the economic drag.

For instance, banks can set a guideline of granting applying firms loans amounting to a specific percentage of their operating revenues, said Mr Chai, who started his firm in 2011.

Alan Phua, who leads food technology firm Alchemy Foodtech, pointed out that the MAS' slew of support measures will be cold comfort to newer and smaller SMEs, which have not taken up loans tied to securities. Rental and manpower costs are still the biggest burdens for firms, he said.

Mr Chua added that even for those with such loans, there is concern that banks may apply deep discounts on non-property securities.

"If there is a way for businesses to convert their rental obligations into mid to long term loans, then that will buy more time too," he suggested, taking reference from the MAS' new scheme that allows individuals to turn outstanding credit debt into term loans at a lower interest rate.

Aside from the measures announced by MAS, SMEs also suggested other ways for banks to ease their pain during this period.

Pauline Ng, founder and managing director of Porcelain the Face Spa, suggested that banks remove earmarked amounts tagged to the usage of their credit card facilities.

According to her, the amount that is locked in is equivalent to about 10 per cent of its business' annual sales.

She has written in to her bank to request to reduce the amount or to transfer it to a fixed deposit to at least earn some interest, but both suggestions have been declined, which she found disappointing.

"Even if we terminate the contract, it will take them six months before they can release our own money to us," she added.

FarEastFlora.com's Mr Chioh proposed that banks do away with the personal guarantee for loans at this time as it forces many business owners to make tough choices.

For those in dire straits, there is the risk that taking up a loan could lead to the business owner becoming bankrupt if it folds, he said.

SMEs believe that banks are best positioned to provide guidance to navigate the schemes available.

FoodXervices managing director Nichol Ng highlighted an "awareness gap" that needs to be plugged, especially for smaller SMEs that may be overwhelmed by the plethora of support measures offered by the authorities and financiers.

"The government and banks may be setting aside money, but many firms, especially the smaller ones, also need help to discern which schemes they are eligible for, and how to apply for them."

Mr Chioh suggested that banks come out in force to work with SMEs on their financial planning, otherwise many long-time or heritage businesses will go under.

"There will be new ones, but it's... like rebuilding everything again and that's not good for Singapore," he said. "(If this happens) we will never be able to grow our own pool of Singapore brands."

READ MORE: