It was reported by Business Times that four in ten small and medium-sized enterprises (SMEs) in Singapore are unserved by financial institutions. This is due to the lack of credit information on SMEs that raises the cost of credit-risk assessment, causing the difficulty for them to secure loans. Due to insufficient funds and cash flow problems, more than 37% of SMEs are found to have overdue payments.
SMEs have lower access to loans because lending to them is much higher and riskier. They have a higher rate of failure as compared to larger organisations. For instance, audit reports are one of the main sources banks rely on to access credit worthiness of a firm. Audit accounts allow the bank to evaluate the growth significance and examine the firm’s ability to repay debt, hence, it is harder for banks to accurate credit assessments.
Aside from the fact that SMEs generally carry higher risk in their credit analysis, SME loans are not as appealing to banks. Underwriting cost the same for a $1 million loan and $100,000 loan, but higher loan will bring the bank more revenue. 80% of the small businesses requested for loans that are less than $500,000, which are not appealing to banks in the business sense.
One is not to deny the economic benefits that SMEs can bring. Not only they contribute to the output of the country’s economy, they also create jobs for many, bringing unemployment rate down. SMEs contribute to technology innovation, aggregate savings and investment to the country. Governments are launching initiatives to ensure their sustainability. As a result, banks are reforming their SMEs borrowing policy in hope to retain and increase their SMEs customer base. Banks are beginning to offer more than just loan lending to SMEs, by providing customised value-added services that suit the unique needs of each SMEs.
SMEs are susceptible to economy changes and are constantly innovating to catch up with market needs. Their unique structure requires bankers to have a thorough understanding of the business model of each company to establish a mutually beneficial working relationship. SME Banking 3.0 is a course that is designed for bankers to develop skills in evaluating qualitative and quantitative factors and assess creditworthiness, and to establish a good understand of the different situations of SME borrowers, honing communication skills. For more information, please visit us at http://www.opuskinetic.com/training or contact us at email@example.com
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