SINGAPORE - A boost has been given to small and medium-sized enterprises (SMEs) who want to take out government-assisted loans at low interest rates as firms attempt to ride out the Covid-19 crisis.
The Monetary Authority of Singapore (MAS) will offer near-zero interest rate loans to eligible banks - just 0.1 per cent per annum for a two-year tenor - in a move to support SME lending under schemes from Enterprise Singapore (ESG).
The initiative will help lower the cost of loans for the Enhanced Enterprise Financing Scheme - SME Working Capital Loan and the Temporary Bridging Loan Programme, said an MAS and ESG statement on Monday (April 20).
The lower borrowing cost will apply to such loans taken between April 8 this year and March 31 next year.
The Temporary Bridging Loan Programme is aimed at helping local companies manage their immediate cash flow needs.
Companies that require more working capital beyond the programme can apply for the Enhanced Enterprise Financing Scheme - SME Working Capital Loan.
The latest initiative, which will be in place until April 2021, was first announced when the MAS rolled out baseline measures for banks and financials to support companies during the pandemic.
OCBC Bank global commercial banking head Linus Goh said that the bank can lower its interest rates on the government-assisted loans with the facility to between 2 and 3 per cent, down from 6 per cent or more at the beginning of the year.
"We will pass all the cost savings to the SMEs and have also waived our processing fees for the new loans," he added.
Association of Small and Medium Enterprises president Kurt Wee said: "The rapid support given to small business arising from the coordination among banks like OCBC, MAS and ESG is also unprecedented."
"This makes me believe that we can all bounce back and then grow from strength to strength after the outbreak," he added, noting that "the last two months have wiped out many small business owners' years of effort in savings and building their business".
"Many are doing all they can to keep fighting to stay afloat - not just for themselves, but for the livelihood of their employees," Mr Wee said.
The Straits Times understands that no funding cap has been imposed on the initiative yet.
The MAS and ESG noted that financial institutions typically take into account their costs of funds and underwriting and a credit spread to reflect the risk profile of the borrower when they price SME loans.
"By providing financial institutions funding at the low interest rate... the facility reduces the financial institutions' cost of funds for loans made under the ESG Loan Schemes," the statement said.
"This will help SMEs manage their cash flow better amidst the current Covid-19 pandemic," it added.
Deputy Prime Minister and Finance Minister Heng Swee Keat said in Parliament on April 6 that the Government will increase its risk share of loans to 90 per cent, up from 80 per cent.
The MAS and ESG said that this initiative aims to complement the Government's efforts.
"The facility also reinforces MAS efforts to ensure ample Singdollar funding to banks in Singapore, by maintaining a high level of Singdollar liquidity in the banking system, so that they can continue to play their role in providing credit to individuals and businesses in Singapore," the statement said.
The central bank expects banks and finance companies to lend more money to SMEs at a lower cost with the initiative, said MAS managing director Ravi Menon.
"Together with the various relief measures that banks and finance companies are providing SMEs as part of the package announced by MAS (last month), this latest initiative will help provide strong support to our SMEs, which are a vital part of our economy," he added.
ESG chief executive Png Cheong Boon said: "We hope that financial institutions would be able to extend loans... at lower interest rates to more SMEs, thereby helping them to ease their cash flows, sustain their operations and retain their workers during this difficult period."