Virus-battered smaller businesses flood banks with loan applications

Singapore

SINGAPORE'S Big Three banks saw a surge in enterprise loan applications in the past two months, with the majority of requests coming from micro and small businesses under siege from the virus pandemic.

Checks by The Business Times found that interest rates for these government-assisted SME loans have come down to as low as below 3 per cent for qualifying small- and medium-sized enterprises (SMEs), down from a rough range of 6-9 per cent previously. These are unsecured loans.

That being said, while some SMEs praised their bankers for proactively reaching out to extend loans, others - usually the smaller ones or those without a track record - told BT they are still waiting for banks to respond to their requests after more than a week.

In Parliament last week, Senior Minister of State for Trade and Industry Chee Hong Tat had said that the enhanced Enterprise Financing Scheme's SME working capital loan - as announced in Budget 2020 and started on March 2 - saw 662 enterprises take up loans as of March 31, 2020, out of which almost 90 per cent are micro and small enterprises, or those with annual revenue of under S$10 million.

Fresh data from DBS showed that the bank saw a year-on-year doubling of government-assisted SME loans and total loan quantum disbursed in March 2020.

A NEWSLETTER FOR YOU

Friday, 8.30 am

SGSME

Get updates on Singapore's SME community, along with profiles, news and tips.

Sign Up

Sign Up

DBS' group head of SME banking Joyce Tee said that the bank received more than 200 SME loan enquiries each day on average in the first week of April - four times higher than the daily average in January, coming largely from micro and small enterprises. Those in the retail, food and beverage and hospitality sectors are especially affected, she said.

As for secured loans, the bank expects to process about 7,000 SME applications for principal moratoriums of up to nine months.

Similarly at UOB, head of group commercial banking Eric Tham said the bank has seen a "significant increase" in SME working capital loan applications in March, with "the majority" approved. Overall, SME working capital loans approved by UOB in March grew close to 60 times from a year ago.

From small businesses in particular, the number of working capital loan applications has doubled over the past month, said Mr Tham. UOB has also seen a rise in applications for loan moratoriums, as well as a jump in temporary bridging loan applications since it was opened up to all industries.

The one-year temporary bridging loan was introduced in Budget 2020 for tourism companies to get loans of up to S$1 million, with the interest rate capped at 5 per cent. It was later expanded to all sectors and the loan amount increased to S$5 million.

Mr Tham said that given the higher risk-sharing by the government, UOB has been able to extend loans to more SMEs, including those that may have previously been ineligible. It will also consider companies in operation for fewer than three years or startups that are not yet profitable on a case-by-case basis, he added.

OCBC declined to give details on its loan statistics, but its head of global commercial banking Linus Goh said the demand for the Enterprise Singapore loans is "significantly higher" than the interest in moratoriums on existing loans at this stage.

Deputy Prime Minister and Finance Minister Heng Swee Keat had said the financing help from the government is for "viable businesses" to have access to credit - not for every ailing business.

This comes even as banks are now given more leeway by the Monetary Authority of Singapore to support lending activities and as the government ups its risk-share for several enterprise loans to 90 per cent.

Still, some businesses are sitting in uncertainty. They have already been rejected or dissuaded from applying as they do not meet the banks' criteria.

Hariman Kwok, founder and CEO of children's entertainment business The Polliwogs, said his applications for SME loans at one bank was turned down. "I have existing lines and we have very good payment record but the banks just don't want to take on more risk," he said. Mr Kwok said his company's financials were deemed "not strong" last year due to internal restructuring while his business has been impacted by Covid-19 since January this year.

The bank did offer loan deferment options, but he noted that interest will still accumulate. Mr Kwok added that he is going to try other banks for help.

SMEs' interactions with the banks have also been varied, with many still waiting on their lenders to move.

Daniel Thong, co-founder of office cleaning company Nimbus Facilities Services, said that from his experience, banks are still asking for traditional metrics such as a positive one-year net asset value or Ebitda (earnings before interest, taxes, depreciation, and amortisation).

"Not many companies can deliver these numbers, especially startups and younger companies," he said.

Nimbus, which has been in operations for three years, started off profitable in early 2020, but as the virus outbreak made its way through Singapore, revenues have since dived 50 per cent due to office closures, said Mr Thong. He has been waiting about a week for his loan to be processed.

Another SME that is waiting on the banks is Alan Lee, co-founder of gift retailer Klosh. According to him, he submitted requests two weeks ago for deferred payments for SME loans, but has yet to hear back from them even after following up.

Ann Goh, managing director of retailer Simply Toys, is also waiting for banks to respond to her request on loan moratoriums since last Monday, but has not gotten a response from most of them. DBS, however, has offered a temporary bridging loan with an interest rate of 2.5 per cent, which she intends to take up.

One retailer in the electronics services space who managed to secure a temporary bridging loan at an interest rate of 3 per cent said: "With the government taking up 90 per cent of the risk share, I think the banks are more relaxed when pushing out the funds." He declined to be named.

Even so, he said the banks still "asked a lot of questions and required a lot of documents". The loan application took about 10 to 12 days for approval, with disbursement in another 10 days, he said. He has another loan application that has been pending for three weeks, due to some back-and-forth. "This is already considered very fast - before the pandemic, it took more than a month," said the retailer, whose business has been operating over a decade.

Some of his fellow entrepreneurs are still mulling over whether to take up loans, he added.

"If they stop now, the losses stop there. If they borrow, it adds to their debt," he said. "There is no guarantee of recovery when the market is back."

READ MORE: Editorial: Laws passed to save SMEs; now cut the red tape, as execution is key