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SME Focus: Financing a major challenge for SMEs in 2017
As economic growth in Singapore continues to slow at the tail end of 2016, SMEs will find financing a bigger challenge in the coming year, according to the latest SME Development Survey.
Compared to last year, the cost of financing has become a much bigger concern among SMEs. The survey, conducted by DP Information Group, polled 2,513 SMEs across various sectors in Singapore, reported The Business Times. Last year, only 6 per cent of companies polled cited financing as a concern. However, this year, the figure has risen to 22 per cent.
The cost of financing stands behind perennial cost challenges like manpower, materials and rent. However, it should be noted that SMEs seemed to consider rental costs less of an issue this year as the figure fell from 36 per cent last year to 24 per cent this year. One reason for this could have been lower rental costs. The Straits Times reported in April that retail rents were lower compared to 2015.
Mr Lincoln Teo, the chief operating officer of DP Information Group, said SMEs should be prepared for a more difficult time accessing financing.
“Banks and institutions have become more cautious about lending to SMEs,” he said.
The poll highlighted various financing issues that SMEs faced. Almost half (46 per cent) said that higher bank interest rates were their biggest challenge. Besides bank loans (66 per cent), government funding schemes were a key financing facility for 24 per cent of SMEs.
The government has already worked on addressing some of these concerns in the 2016 budget. A new SME Working Capital Loan scheme was introduced for up to $300,000 per company. Under this scheme, the government will co-share 50 per cent of the default risk of such loans with participating banks and financial institutions – encouraging lending among banks.
As a result of higher costs of financing, SMEs are coping by raising productivity (42 per cent), sourcing for cheaper supplies or raw materials (19 per cent) and reducing overheads (17 per cent).
But some SMEs are taking more drastic measures – 7 per cent of SMEs said they will downsize their operations. This is up from 2 per cent in 2014 and 2015. Besides retrenching staff, downsizing could also refer to the shutdown of physical branches, production lines, or product offerings.
Another rising challenge that SMEs may face in the coming year is a tightening cash flow as a result of the costs of financing, reported Channel News Asia. Compared to last year’s 3 per cent, 7 per cent of SMEs named cash flow problems as a top business concern.
Mr Teo said that SMEs needed to have good management skills to avoid having cash flow problems. “This means being more vigilant in the credit they offer and avoiding bad loans and default from customers,” he said.