This despite Govt’s plan to bear up to 80% of risk to help some SMEs
By Goh Eng Yeow & Gabriel Chen 20 December 2008
Cash-strapped firms are complaining that the Government’s plan to help them with an extra $2.3 billion in loans is being derailed by banks’ reluctance to lend.
They claim the banks are so risk-averse that they are holding back on making vital loans under a scheme designed to get credit flowing through the business community.
These loans are structured in such a way that the Government and participating banks such as DBS, OCBC and United Overseas Bank share the risks.
In loans to firms with fewer than 10 staff members or for purchases of factory equipment, for example, the Government bears up to 80 per cent of the losses. If the company defaults, the bank must bear the rest of the loss.
Borrowers who have been turned away complain that the risk-sharing arrangement is not working because banks are too jittery to put up their share of the cash.
One Straits Times reader said: ‘I have a business friend who was asked to fill up 40 pages of details and then turned away with a one-line statement saying that his firm doesn’t qualify. And he has been in business for 29 years.’
Figures from Spring Singapore, which administers the scheme, show that loan applications from 30 companies worth $5million have been approved since the measures took effect nearly three weeks ago.
More than 700 enquiries and 140 applications had been received.
Around 124,000 companies here could potentially benefit from the scheme.
The president of the Association of Small and Medium Enterprises, Mr. Lawrence Leow, told The Straits Times: ‘The crisis is quite severe. The reason firms need bridging loans is that they are facing financial difficulties.’
But the risk-sharing formula which involves the Government providing the funding and financial institutions giving out the loan is not working.
Mr. Leow hopes the Government can fully underwrite the risk for the loan - at least for the first year.
‘This way, banks can take comfort that they won’t be taking too much risk,’ he said.
And when the situation becomes more stable, say, in 2010, the Government can reduce the risks it bears to 80 per cent of the loan, he added.
But participating banks have defended their approach.
A UOB spokesman said the bank has always been supportive of the loan scheme. ‘It is also our way of supporting our SME customers,’ it said.
HSBC said it ‘remains committed to lending to SMEs under these schemes’.
A check of the criteria used by the banks to vet potential borrowers shows that most require the company to have a track record of profit. They also evaluate cash flow and the firm’s ability to repay.
While lenders such as GE Commercial Finance take the Government’s risk-sharing arrangement into consideration, others like Maybank said their lending criteria do not differentiate between borrowers on the scheme and borrowers in general.
Spring Singapore’s deputy director of financing and incentives management, Mr. Melvin Lee, told The Straits Times that it has ‘regular meetings with participating banks to see what else the Government can do to encourage them to lend to good viable businesses’.
It is also reaching out to companies to make them aware of the available financing and getting feedback.
But Mr. Lee noted that ‘even with the Government taking on the bulk of the default risk, SMEs need to satisfactorily convince the banks that they are able to repay their loans and show how they plan to get through these challenging times’.
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Banks Too Cautious Over Lending?
This despite Govt’s plan to bear up to 80% of risk to help some SMEs
By Goh Eng Yeow & Gabriel Chen
20 December 2008
Cash-strapped firms are complaining that the Government’s plan to help them with an extra $2.3 billion in loans is being derailed by banks’ reluctance to lend.
They claim the banks are so risk-averse that they are holding back on making vital loans under a scheme designed to get credit flowing through the business community.
These loans are structured in such a way that the Government and participating banks such as DBS, OCBC and United Overseas Bank share the risks.
In loans to firms with fewer than 10 staff members or for purchases of factory equipment, for example, the Government bears up to 80 per cent of the losses. If the company defaults, the bank must bear the rest of the loss.
Borrowers who have been turned away complain that the risk-sharing arrangement is not working because banks are too jittery to put up their share of the cash.
One Straits Times reader said: ‘I have a business friend who was asked to fill up 40 pages of details and then turned away with a one-line statement saying that his firm doesn’t qualify. And he has been in business for 29 years.’
Figures from Spring Singapore, which administers the scheme, show that loan applications from 30 companies worth $5million have been approved since the measures took effect nearly three weeks ago.
More than 700 enquiries and 140 applications had been received.
Around 124,000 companies here could potentially benefit from the scheme.
The president of the Association of Small and Medium Enterprises, Mr. Lawrence Leow, told The Straits Times: ‘The crisis is quite severe. The reason firms need bridging loans is that they are facing financial difficulties.’
But the risk-sharing formula which involves the Government providing the funding and financial institutions giving out the loan is not working.
Mr. Leow hopes the Government can fully underwrite the risk for the loan - at least for the first year.
‘This way, banks can take comfort that they won’t be taking too much risk,’ he said.
And when the situation becomes more stable, say, in 2010, the Government can reduce the risks it bears to 80 per cent of the loan, he added.
But participating banks have defended their approach.
A UOB spokesman said the bank has always been supportive of the loan scheme. ‘It is also our way of supporting our SME customers,’ it said.
HSBC said it ‘remains committed to lending to SMEs under these schemes’.
A check of the criteria used by the banks to vet potential borrowers shows that most require the company to have a track record of profit. They also evaluate cash flow and the firm’s ability to repay.
While lenders such as GE Commercial Finance take the Government’s risk-sharing arrangement into consideration, others like Maybank said their lending criteria do not differentiate between borrowers on the scheme and borrowers in general.
Spring Singapore’s deputy director of financing and incentives management, Mr. Melvin Lee, told The Straits Times that it has ‘regular meetings with participating banks to see what else the Government can do to encourage them to lend to good viable businesses’.
It is also reaching out to companies to make them aware of the available financing and getting feedback.
But Mr. Lee noted that ‘even with the Government taking on the bulk of the default risk, SMEs need to satisfactorily convince the banks that they are able to repay their loans and show how they plan to get through these challenging times’.
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