When the Monetary Authority of Singapore (MAS) announced last week that eligible banks can borrow at just 0.1 per cent per annum for a two-year tenor, in a move to support lending to small and medium-sized enterprises (Near-zero rate helps banks reduce cost of loans to SMEs, April 21), I was glad that the financial support that SMEs need to weather their liquidity crises is finally trickling down to them.

As a lawyer, I have been advising SMEs on how to deal with potential insolvency situations caused by the circuit breaker measures, and know the urgency of the relief measures.

But I have come to understand that the "trickling down" is not happening in reality. Many banks are not willing to extend low-interest unsecured bridging loans or working capital loans to SMEs without obtaining a personal guarantee from the owners.

This puts business owners in a quandary: Should they try to save their companies and risk going bankrupt in the process? Or should they liquidate the business now and just let the company go? It is not an easy question to answer without knowing how long the Covid-19 situation will last.

Further, the 0.1 per cent interest rate that the MAS has offered to the banks has yet to translate into actual low-interest loans available for SMEs. Anecdotally, the lowest interest rate I have heard of is 1.8 per cent.

While it is certainly better than the rates previously offered by the banks and offers an opportunity for many SMEs to refinance, it is still not anywhere close to the 0.1 per cent rate at which the MAS is lending to the banks.

It appears that the MAS needs to police the implementation of this scheme better, just like how the Government had to police the passing on of property tax rebates by landlords to tenants.

Alternatively, instead of requiring a personal guarantee, perhaps the banks should consider imposing conditions on the unsecured loans whereby the business owners cannot use the loan monies to pay themselves or their key management team, but can use them only for operations and to pay employees. This reduces the opportunity for abuse of the almost-free credit.

Based on my informal poll of SME business owners, that is something they would be willing to do.

It removes the risk of exposing themselves personally to financial ruin while giving them a real incentive to continue trying to save their businesses, and most importantly, their employees' jobs.

Danny Quah Wei Sheng