Businesses get help with cash flow but SMEs want banks to do more
Singapore
BUSINESSES will get a further shot in the arm to ease cash flow pressure amid the Covid-19 pandemic, but some small and medium-sized enterprises (SMEs) remain concerned that they will not get financial support from the banks when they need it most.
As part of the Resilience Budget, Deputy Prime Minister and Finance Minister Heng Swee Keat said on Thursday that the government will enhance its financing schemes "so that even the hardest-hit businesses can continue to have access to credit".
The Enterprise Financing Scheme's (EFS) trade loan component will see the maximum quantum jump to S$10 million from S$5 million, while the government's risk-share will go up to 80 per cent, from 70 per cent previously.
Businesses will also receive higher subsidies of 80 per cent - up from 50 per cent - for loan insurance premiums under the Loan Insurance Scheme (LIS).
On the trade financing boost, SMEs said that the measures are helpful but may not solve the underlying issue which is a lack of demand.
John Cheng, director of sugar manufacturer Cheng Yew Heng Candy Factory, pointed out that this comes at a time when banks are tightening credit.
"With the government backing this, hopefully banks would be more willing to help companies," he said. "LIS might help companies facilitate trade, but (this is) limited as trade volumes are lower due to a lock down and lower demand overseas."
Mr Heng also announced that the one-year temporary bridging loan programme will be expanded to all enterprises - not just those in the tourism sector - and the maximum supported loan will be increased to S$5 million, from S$1 million previously.
The programme 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. The government will take on 80 per cent of the risk of the loans.
Beyond the temporary bridging loans, SMEs that require more support can continue to tap into the SME working capital loans under the EFS.
The maximum loan quantum for this working capital loan will be further raised to S$1 million, from S$600,000, heeding the calls of various businesses that had proposed increasing the amount.
In his speech, Mr Heng said that the government will work with participating financial institutions (FIs) to defer capital payments for one year on the EFS working capital loans and the temporary bridging loans. This will be subject to assessment by the participating FIs.
Desmond Teo, EY Asia-Pacific Growth Markets Financial Services tax leader, noted that the FIs will benefit.
"Beyond helping to alleviate the cashflows of the borrowers, this may also help to stem such loans from becoming non-performing and adversely impacting the quality of the balance sheets of financial institutions," he said.
SMEs that The Business Times spoke to were cautiously positive on the enhanced schemes and deferment of loan repayments, but some flagged that this may not help smaller players as they are unlikely to qualify for them at this critical juncture.
Declan Ee, co-founder of furniture store Castlery, said that young companies like themselves usually have limited access to traditional financing lines from the banks.
"Even those with established lines, we might be the first to get such lines pulled by the banks," he noted. "Many of such lines are simply working capital lines, and the cash conversion cycle for this year will likely get extended dramatically, resulting in a mismatch with the current terms from the banks."
He added that the extension of one year will "allow many companies to tide through this period".
Similarly, Lee Junxian, CEO of relocation tech startup Moovaz, said: "This will more likely benefit the mid to large companies than the younger and smaller ones, as we don't fit squarely into the bank's compliance and other requirements."
Aside from whether they qualify, another hurdle for SMEs is the speed of disbursements and interest rates for loans.
Mr Lee said that in his experience, it could take up to two months for banks to approve a loan for small SMEs, which might be too late for some. The interest rates for the loans will also be a key consideration as loans have to be repaid eventually.
"Low-margin industries like F&B (food and beverage) will unlikely be able to service the loan amounts," he noted. "I feel that fundamentally, loans kick the can further down the road - given an environment of plummeting revenues, we have to correspondingly cut costs."
Lyn Lee, founder of F&B chain Awfully Chocolate said that she found some of the banks' interest rates too high, given that the government is sharing most of the risk while the cost of funds is "essentially zero around the world".
"The interest rates must come down more significantly otherwise their legacy will be that the Singapore banks were opportunistic in a time of dire need," she said.
Financing schemes aside, the government will also set aside S$20 billion of loan capital to "support good companies with strong capabilities" as well as to catalyse private sector loan capital.
In addition, businesses also get an automatic deferment of income tax payments due in April, May and June 2020 to ease their cash flow in the immediate period, said Mr Heng.
But for the SMEs that are in the red, this will not apply.
Daniel Ho, tax partner and tax leader for Government & Public Services sector, Deloitte Singapore, said: "Compared to other countries such as Australia, three months may not seem sufficient. Nevertheless, if the situation persists, a further deferral can be expected."
The Monetary Authority of Singapore is also said to be working with banks and insurers on customers' loan obligations and insurance premium payments, with details to be announced later.
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