Govt SME loan schemes have positive impact on firms' topline: MTI study

Singapore

ENTERPRISE Singapore's loans to small and medium-sized enterprises (SMEs) had a positive impact on their revenue, possibly by helping with their working capital needs to increase sales, according to a study from the Ministry of Trade and Industry (MTI) on Thursday.

It was also found that the loans did not affect the natural functioning of the market by inhibiting the firms' exit rate, said the MTI economists.

Enterprise Singapore's loan schemes complement commercial lending and financing to local small and medium-sized enterprises (SMEs) through the sharing of risk of loss on loans.

The study focused on three loans: the SME Equipment Loan, which supports equipment financing for companies with higher risk profiles; the SME Micro Loan, which provides working capital financing for micro-enterprises; and the SME Enhanced Micro Loan, which provides working capital financing for young micro-enterprises less than three years old.

Among the firms that received any of the three types of loans, the majority of them took up only one loan in 2008 to 2015, with micro loans having the highest take-up rate at 8,000 loans. Equipment loans came in at 1,300, while enhanced micro loans had a take-up rate of 1,400.

The MTI study found that the enhanced micro loans - introduced only in 2014 - had the largest impact on the revenue of firms. On average, for each dollar of loan received, the revenue of firms increased to S$8.30- S$12.20 on average one year later, significantly larger compared to the two other loans.

The findings showed that the enhanced micro loans are an important source of support for young micro-enterprises, which may require the additional credit to expand sales as they traditionally face greater difficulties in obtaining commercial loans, said the economists.

As for the equipment loan, its revenue impact increased over time and reached S$1.40-S$3.70 on average for firms across all sectors more than two years after the receipt of the loans.

For micro loans, the revenue impact per dollar increased to S$2.60-S$2.90 on average for firms in domestically- and outward-oriented services sectors after one to two years of receiving the loan, before dipping slightly in subsequent years.

An additional finding from the report was that the Enterprise Singapore (ESG) loans did not seem to affect the probability of a firm's exit across all sectors.

"This suggests that ESG's loans had not inadvertently prevented the exit of firms and thus inhibited the natural functioning of the market," wrote the MTI economists.

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