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Cost, labour issues a concern for SMEs as funding options increase

Loans and schemes aimed at helping small and medium-sized enterprises have mushroomed in recent years. But industry observers said for SMEs, cost and labour issues remain uppermost in their minds.

SINGAPORE: Loans and schemes aimed at helping small and medium-sized enterprises (SME) have mushroomed in recent years.

But while funding options have increased, industry observers said for SMEs, cost and labour issues remain uppermost in their minds.

The Singapore economy is into its fourth year of restructuring.

There is no lack of grants and schemes for SMEs to automate and rely less on foreign labour.

The bank-financing environment also looks healthy -- with OCBC launching a collateral-free loan to start-ups as young as six months old, and UOB staying bullish on the sector.

UOB estimates it has a 50 per cent market share among SMEs that make less than S$20 million a year.

"We wanted to expand our SME space, so we created this unit called Business Banking three years ago.

“We've been seeing clearly double-digit growth these last few years. We will continue to be bullish for the next three to five years, and we will continue to invest in this particular business,” said Victor Lee, group head of Business Banking at UOB.

At a recent results briefing, DBS said it grew its SME revenue to a record S$375 million in the first quarter.

DBS CEO Piyush Gupta said the bank now has 150,000 new customers in the SME space.

"Recently we launched an online account opening capacity -- the first bank, we reckon, in Asia -- which lets you open an account for SMEs online within 15 minutes, and we're beginning to get very good traction in customer acquisition.

"We're also getting very good traction in cross-sell. So we're now beginning to do capital market activities and a lot more treasury activities among the larger SMEs, and that's giving us another big growth within this broad business area," said Mr Gupta.

But the positive outlook could be at risk.

According to the Association of Small and Medium Enterprises (ASME), higher costs that result from restructuring may slow start-up rates.

It may also cause existing businesses to hold back on expansion, as they tighten their belts to ride through the current high cost environment.

ASME president Kurt Wee said: "The impediment to really foster the start-up market right now is not so much the lack of financing or the lack of schemes, but it's more so that we're generally in a very high cost environment now.

“And also, businesses are generally starved for manpower. So it makes businesses unwilling to set up, if they are not going to have the capacity to execute those workflows as well."

According to a recent parliamentary exchange, about a third of all business credit in Singapore is extended to SMEs.

That figure is on par with the US, but is lower than places like Taiwan and South Korea, where the number is overall half.

But industry players said that is because places like Taiwan are overbanked, which may be due to aggressive lending schemes, which could lead to defaults.

"Conversely, if you look at the Singapore banks, we are conservative, and we have been able to see and grow our SMEs sustainably, over tens of years.

“And if you look at the most recent Asian crisis -- the 2008, 2009 crisis -- you've seen our SMEs steer through the course in a very resilient way, and have come out stronger today,” said Victor Lee, group head of Business Banking at UOB.

The key concern now, is how well SMEs will emerge from the current challenges. 

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