SME business woes made worse by credit crunch

Bank loans too little, terms too stiff, they say; some turning to crowdfunding alternatives

Ademco Security managing director Toby Koh said two banks approached his company offering loans, but the amount offered was too little.
Ademco Security managing director Toby Koh said two banks approached his company offering loans, but the amount offered was too little. ST PHOTO: AZIZ HUSSIN

A few months ago, Data Terminator director David Ong was approached by a global bank offering him a loan of $300,000 to $500,000.

He applied, hoping to get the funds to use as working capital for his data security services firm.

"The bank's sales and business development team was really enthusiastic. They reviewed our business, revenue stream and overall financial health, and believed we had a good case for the loan to be approved," he said.

His application was turned down.

"The credit department said that even though our average revenues over the last six months met their criteria for a loan approval, they were rejecting our application anyway because our revenues were not consistent. I fought, but they refused to budge."

Stories like his are becoming more common. Small and medium-sized enterprises (SMEs), already grappling with slumping sales and tighter cash flows, are finding that credit is drying up, too.

A recent survey of 3,600 SMEs by the Singapore Business Federation and DP Information Group found that these firms are less confident about being able to obtain funding in the next six months.

An index measuring expectations for access to financing fell to its lowest level since 2013, amid an overall drop in business sentiment.

A separate survey conducted by Visa and Deloitte painted a similar picture.

In the survey of Singapore SMEs, 72 per cent of respondents said they required funds to better manage their working capital and mitigate cash flow problems, up from 62 per cent that said so in 2011.

Some 37 per cent said they had overdue payments that were already over 30 days late, with the top reason cited being a lack of funds.

Several SME bosses who spoke to The Straits Times said they are still receiving regular cold calls from banks offering loans, but these loans come with terms they find too onerous.

Anacle Systems chief executive Alex Lau said: "If they do promote their products, unsecured loans will come with interest rates as high as 11 per cent, and must be personally secured by the directors and capped by the salaries of the directors.

"Otherwise secured loans must be 100 per cent backed by assets such as cash, property or trade inventory."

Ademco Security managing director Toby Koh said: "This year... we are on track to deliver about $35 million in revenue and double-digit growth in earnings before tax.

"Two banks approached us earlier this year and yet they were so conservative. They were offering not even $1 million."

With sales slowing down, cash flows getting tighter and credit increasingly difficult to obtain, more SME bosses are turning towards alternative sources of funding, such as crowdfunding platforms.

There are already several financial start-ups here in this field that match companies with groups of private individuals who are willing to disburse small loans, at reasonable interest rates, to them.

Air Division managing director Michael Toh said he was exploring the possibility: "It seems to be an interesting way to raise funds from private lenders."

This is an avenue that Data Terminator's Mr Ong is considering, too.

The unexpected rejection of his loan application disrupted the growth momentum of his business, he said, and he has had to do some damage control.

"I lost credit from my supplier as I had to drag out payments. I have to give special concessions to customers to incentivise them to pay me earlier, which cuts into my margins," he said.

"I have even had to raise temporary cash from friends and family."

Join ST's Telegram channel and get the latest breaking news delivered to you.

A version of this article appeared in the print edition of The Straits Times on November 11, 2015, with the headline SME business woes made worse by credit crunch. Subscribe