Banks rejected 55% of SMEs' loan applications in 2012

There'll be more testing times ahead.

According to a release by Loyal Reliance, the company tracked more than 700 applications for financing, including term loans, trade facilities and property refinancing for the whole of 2012. More than 55% of them had been rejected. Shockingly, just 12.5% of all trade financing applications were approved during the survey period.

“SMEs in Singapore faced a tough 2012 and the future looks equally gloomy unless there is more credit relaxation. The lack of capital inflows to the SME industry is clearly stifling growth, affecting their survival,” said Mr Jeff Koh, Managing Director of Loyal Reliance Pte Ltd, a SME consultancy group specializing in financial management.

“Since there are more controls on trade facilities, banks should have been more willing to approve applications for such facilities if applicants can prove they have bonafide operations,” noted Mr Koh.

“Rejections may have occurred because banks may be more stringent in their selection regarding approval of such facilities now due to the high uncertainties of 2012. Secondly, companies may have gaps in their understanding of basic cash flow and management.”

Mr Koh also noted that a number of his own clients have been affected by the sudden cancellation of their existing facilities. Such companies would have to scramble for funds to either pay back the facilities quantum used, or to cover continuing operating costs.

“They were caught off guard by these cancellations, often having to resort to dipping into their emergency funds or borrowing more term loans to cover these exigencies. As such, they have had to lay-off workers or put on hold plans for purchasing new machinery.”

Mr Koh hopes that the Singapore Budget 2013, which is expected to be announced on 25th February 2013, will include additional solutions for the SME community.

“SMEs cannot be treated like larger corporations and their focus is on survival rather than on expansion. The government’s push for productivity in 2012 is slowly gaining traction amongst SMEs but I hope more can be provided by the government in the form of cash-related programmes that they can adopt to generate more business. One such programme, the Productivity and Innovation Credit (PIC) scheme from IRAS, has proved popular with SMEs due to its generous cash payouts and tax savings.”