Running out of cash?

“I was so alone, and I felt so sorry and ashamed because a father is supposed to provide for his kids, but I couldn’t do that. I couldn’t even buy them simple gifts like a wristwatch.” said a jewellery business owner in his 50s who took personal loans from nine banks to keep his company afloat and ended up with a $130,000 debt in an interview with The New Paper (TNP).

This business owner was not alone as there were many other entrepreneurs that told TNP that they took personal loans as a last choice to save their businesses as they were no longer able to get credit from the banks.

We often hear about the glitz and glamour of successful entrepreneurs and their SMEs, but what about those that fail? In this article, we look at how SMEs end up in debt, the problem with delayed payments and how you can seek help.

Falling into debt

In our previous article of the 3 Main Challenges of SMEs in Singapore, we discussed the problems that business owners of SMEs face and apart from those, there are two other factors that might contribute to SMEs falling into debt if not managed properly too. These are – rising costs and limited access to finance. R

Rising costs – According to a survey, 42% of Singapore’s SMEs reported that increasing costs had significantly harmed on their business last year. The increase in the cost of labour is an example of rising business costs that many Singapore business owners face. This has affected their margins and decrease the average value added per firm, making it more difficult to operate a profitable enterprise.

Limited access to Finance – A recent study concluded that about 4 out of 5 Singaporean SMEs do not qualify for business financing. In 2017, 18% of SMEs reported finding it “easy” to obtain financing, and 12.4% of SMEs expected “easy” access to financing in 2018 – both results are a significant percentage down from 2014. Without sufficient financing, business owners of SMEs may face issues with regards to their business growth and their daily operations. (Source: Value Champion)

Delayed payment

A research done by DP information Group also showed that nearly two out of three small and medium-sized enterprises (SMEs) failed to pay their debts on time in the second quarter of 2017. Manufacturing companies were the worst culprits, with three out of four failing to pay their debts on or before the due date in the second quarter. Hospitality and food and beverage companies were next, with two-thirds failing to pay their debts on time. Meanwhile, just under two-thirds of construction firms missed their payment dates.

In the 2017 SME Financing Survey by Spring Singapore, it was found that managing delays in customers’ payment remains a key finance-related challenge. The findings also revealed that 64% of SMEs currently face some form of delay in receiving payments from customers. Delayed payments was even ranked as the top finance-related challenge they expect to face in 2018. Once not managed carefully, delayed payments can have a serious impact on an SME’s cashflow and working capital management. (Source: Business Times)


Seeking help

Based on their website, Credit Counselling Singapore (CCS) has been helping individuals to deal with their unsecured consumer debts since 2004 by providing information to individuals on how to manage their unsecured consumer debts, and where feasible, arranging a restructuring of their unsecured consumer debts with bank creditors enabling the individuals to pay off their unsecured consumer debts over a specified period.

The Enterprise Credit Counselling Programme (ECCP) is a new pilot programme launched by CCS to advise owners of small enterprises on their obligations and financial liabilities in the event of business termination. Where feasible, propose a repayment arrangement to their creditors for unsecured business debt that remains as well as for unsecured personal debts. This is provided that the total unsecured business debt owing to all banks and financial institutions is not more than S$500,000.

CCS chairman Kuo How Nam mentioned in an interview that the pilot programme seeks to address a gap in Singapore’s drive for entrepreneurship – there are many support to help SMEs grow and expand, but there are not much programmes to help those that fail. He said, “We are not out to save enterprises that are in trouble as we don’t have the resources or expertise to broker a deal with the various stakeholders involved in a rescue mission, but we can try to minimise the impact of a business failure by helping the owners avoid bankruptcy if their creditors can agree on a structured repayment


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