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SBF post-Budget 2009 seminar updates members on enhancements to government financing schemes, and the dos and don'ts of bank loan application |
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Singapore, Thursday, 5 February 2009 - How would the Singapore economy pan out after the Budget measures for 2009? In what ways can SMEs leverage on the government's financial schemes from the S$20.5 billion Resilience package? What should companies include in their business plan when applying for
a bank loan? These and other pertinent questions were answered by financial industry experts, representatives from the Singapore Business Federation (SBF) and SPRING Singapore at a post-Budget 2009 briefing to some 1,050 members of the business community today.
Key enhancements for government financial schemes
In his Budget 2009 speech in January, Finance Minister Tharman announced that the government will set aside S$5.8 billion out of the S$20.5 billion Resilience Package for the Special Risk-Sharing Initiative (SRI) component. This component will extend government support to companies beyond the SMEs. The SRI aims to stimulate bank lending and the government expects the changes to lead to S$11 billion worth of loans this year.
SPRING Singapore's Deputy Director for Financing & Incentives Management, Mr. Melvin Lee, informed participants about the key enhancements made to the government financing schemes; the contact information for the Financial Facilitator Programme (FFP); and the 14 participating financial institutions which they can approach for the loans.
Mr. Lee said that the additional enhancements were made to the Loan Enterprise Finance Scheme (LEFS), Micro Loan Programme (MLP), New Bridging Loan Programme (BLP), Loan Insurance Scheme (LIS) and LIS+. The government and SPRING Singapore increased their level of risk sharing in the all of the above mentioned schemes. The eligibility criteria were extended in the LEFS, the BLP and LIS. The LEFS saw its scope expanded, while the maximum loan quantum for BLP rose to S$5 million from S$500,000. MLP's base interest rate was cut to 5% from 6.25%.
This movement came after the enhancement of the government's SME loan schemes (S$2.3 billion) such as the LEFS and Micro Loan and the introduction of the BLP for working capital loans in November 2008. According to media reports early this month, there was at least a 60 per cent increase in government-backed loans approved last month.
10 key reasons why business owners are unsuccessful in securing bank loans.
Mr. Wee Chin Chuan, Executive Director of Oriel Management Consulting, and consultant to SBF's FundsAssist@EBIS gave valuable tips on how to present a convincing business case to banks when they apply for loans. FundsAssist@EBIS is a service where experienced financial advisors assist members in putting together their loan applications to the various banks that are participating in the government's financing programmes.
He also summarized the top 10 reasons why local business owners are unsuccessful in securing
bank loans.
1. Poorly drafted business plan or no business plan
a. Too much focus on the company's products and little emphasis on how the business generates cash to repay the loan.
b. Past financial performance not clearly explained.
c. Weak or no credible explanation of revenue, cost and capital expenditure assumptions.
2. Poor financial documentation and non-compliance.
a. Company's Financial Statements do not tally with bank statements
b. Withdrawal of cash without proper records and accountability
c. Backlog of financial accounts
d. Poor cash flow management
3. Lack of credible management team: "One-man show syndrome" and poor credit profiles of business owners
4. Weak company financials: over-gearing, under-capitalised, losses or under-reporting of earnings and unrealistic valuations
5. Inconsistencies and "negative" surprises appear when presenting business case to capital providers, or/and during due diligence exercise
6. Flooding market with business plan by applying to many banks for loans simultaneously - this can be highly damaging for the company's reputation.
7. Failure to appreciate and understand capital providers' requirements and expectations
8. Approaching the wrong parties (banks, investors, etc) for funding
9. Business owners did not or put in very little investment but demand majority control
10. Business owners'/directors' refusal to provide guarantees (for bank loans)
Mr. Wee advised companies to prepare business plans that address the concerns of bankers, including the following:
Market size
Product & Service proposition
Business Model - Scalability
Competitors' Analysis and Market Strategy
Credentials of management team
Explain assumptions used in financial forecast (consistency and reasonableness tests)
Demonstrate financial viability, repayment capability (loan principal, interest, dividend, etc)
Risk Analysis and how to deal with them
Funding Plan (sources of funds, owner's contribution)
Corporate governance (internal controls, audit & compliance, independent reports)
During the panel discussion, SBF CEO, Mr. Teng Theng Dar informed participants that the apex chamber will be rolling out an all inclusive, one-stop business financial service in 2H 2009 to assist members with their business needs and help them build capacity. SBF will also be helping its members to explore other sources of funding such as private equity capital as an alternative to bank loans.
Budget 2009: Impact on Singapore Economy and Assistance for Businesses
Regional Economist and CEO of CIMB-GK Research, Mr. Song Seng Wun, and Executive Director for Corporate Tax of KPMG, Ms. Anna Low, gave their take on the impact of the budget measures on the economy and businesses.
The following views and projections were released at the seminar:
1. Singapore government takes a calibrated approach to the economic recession. Budget 2009 measures are rather business-centric rather than providing relief to all segments of the economy. There is room for off-budget measures in 2H09, if the recession in 1H09 deepens.
2. Budget 2009 is designed to help companies keep jobs and keep corporate bankruptcies down.
3. The Jobs Credit scheme, accounting for almost a quarter of the budget, is quite innovative, but benefits mainly companies with fewer foreign workers.
4. Another quarter of the budget will be used to spur bank lending to corporations and SMEs.
5. The cut in corporate tax rate to 17% from 18% will help companies that derive more of their earnings from Singapore. There is little to help the household sector. There may be room for off-budget measures in 2H09, if the recession in 1H09 gets worse.
6. Private consumption slowdown in the US and Eurozone may have a significant impact on the rest of the world.
7. Singapore and Hong Kong have the highest ratio of exports of goods and services to the GDP in Asia at 2.1 and 2.5 respectively.
8. For small and open trade-dependent economies such as Singapore and Hong Kong, the sharp fall in global trade and financial flows could lead to their worst economic performances ever.
9. This recession may have a longer tail than normal because of the synchronised slowdown in all countries.
10. Singapore's 2009 GDP is expected to fall by 4% to 4.5% if there is no growth in all the quarters.
11. Companies should take note of short window of opportunities for various tax benefits.
For an update on SBF programmes and activities, look up "Upcoming Events" on the SBF website,
www.sbf.org.sg
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