As Seen on The Business Times on 22 October 2015
Article by Mindy Tan
ABOUT six in 10 small and medium-sized enterprises (SMEs) in Singapore rely on bank loans for financing, leaving the other four in 10 unserved by financial institutions.
A Visa and Deloitte Digital SME Banking Study, in highlighting the struggle SMEs face in securing financing, also analysed the financial needs of these SMEs and said that the low-risk appetite of banks was limiting the amount of lending to SMEs.
Ooi Huey Tyng, Visa country manager for Singapore and Brunei, said the lack of credit information on SMEs also raises the cost of credit-risk assessment, and makes it less tenable for financial institutions to service certain segments of the SME market.
“Lack of SME cash-flow visibility also forces banks to place greater emphasis on collateral requirements when assessing SME credit risk – but very often, SMEs are not able to provide such collateral, leading to their loan applications being rejected,” she said.
The study also cited a Singapore Business Federation National Business Survey done last year, which found that 72 per cent of Singapore SMEs required funds to better manage their working capital and alleviate cash flow problems; in 2011, the figure was lower – 62 per cent.
More than a third (37 per cent) of the SMEs here had overdue payments that were already more than 30 days late – a figure higher than among SMEs elsewhere. In the Asia-Pacific, 30 per cent of these companies were in arrears for more than 30 days; in America, the figure was 32 per cent, and in Europe, 31 per cent. The top reason for delayed payments among 48 per cent of the SMEs was insufficient funds.
Mohit Mehrotra, executive director, Deloitte Consulting, said: “As key contributors to their countries' economies, SMEs should be a priority market for stakeholders such as the government, regulators, financial institutions and non-bank financial institutions.
“Difficulties with access to financial facilities and export markets hinder SMEs' development in the region. SMEs need adequate cash flow for investment, and continual improvement of operational efficiency and productivity. Without adequate financing, they will be unable to build competitiveness and resilience or be innovative and sustainable in today's competitive climate.”
Ms Ooi noted that SMEs also face problems in disbursement and receipt of payments, so they need access to financing solutions.
“SMEs can consider using electronic platforms for procurement and payment, which helps to improve cash flow. Once there is better cash flow visibility, banks will be able to approve loan applications, since lack of collateral was cited as the key reason behind rejected loan applications.”
An example of a technology solution is Visa IntelliLink Spend Management, which enables the capturing, managing and reporting of all business transactions. By offering transparency, the system gives companies increased control and enables them to forecast their planned expenditures more accurately.