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SMEs bracing for tougher days

THE tougher economic environment, exacerbated by higher commodity and raw material prices, has put many small and medium enterprises (SMEs) in a quandary.

Although there are those who are able to weather the storm, many are juggling with rising costs that are beginning to impact their margins. They also face increasing difficulty in obtaining funding.

The reason being most banks are now taking a more cautious stance when providing financing or working capital, especially to the newer SMEs.
Stringent approval                            

A managing director of a SME manufacturing company said banks had been more stringent in approving loans for SMEs now and felt that this would, to an extent, hamper the growth of the industry.

“How is the industry going to prosper when funding is restrictive now? Although there are numerous grants available, not everyone gets it.

“We too are finding it quite difficult to source for funding from banks. Some banks have even issued letters to other players to recall their unused loans,'' he lamented.

Another SME player in the services sector added that loans should be extended to even newer players, as they needed funds to grow their businesses. Many SMEs who are now exporting were at one time smaller players also, he noted.

SMI Association of Malaysia national president Chua Tiam Wee said: “While there has been an overall growth in SME financing in the last two to three years, many SMEs are not happy as banks mostly prefer to give financing to their old customers and top-up financing to good customers.

“Our concerns are for the new SMEs which are hungry for financing. Being young, they need more funds to grow but they lack collateral.

“Banks should play a more important and supporting role in providing loans and giving advice and mentoring the young SMEs instead of focusing on 0% risk of financing.”

The 40% hike in petrol prices has further put pressure on the cost of operations for SMEs and dented their earnings.

Chua said this would cause difficulty to some SMEs in servicing their loans, hence causing banks to become more risk adverse and probably pull back credit lines, as experienced in the last Asian financial crisis.

Industry observers and analysts generally felt that Bank Negara's recent two financing facilities of up to RM1.2bil to help SMEs cope with the impact of higher costs were timely and a move in the right direction.

At the same, many time felt that it should be properly scrutinised and not only given to a “favourite” sector or “candidates” but should also be extended to newer players with good growth potential.

The facilities – RM700mil SME Assistance Facility and the SME Modernisation Facility with an allocation of RM500mil – would commence on Friday.

Financing outlook
The SMI Association and SME Bank are not painting a rosy picture in terms of SME financing for the rest of the year.

According to the association, the growth momentum of the last couple of years is unlikely to continue for the remaining year, as banks were too pessimistic of the country's economy.

The SME Bank, on the other hand, does not expect an uptrend in financing experienced from 2005-2007 to continue this year due to economic uncertainty, cutbacks on several Ninth Malaysian Plan projects as well as reduction in administrative spending.

A banking official advised SMEs who are looking for financing to carefully scout for banks that are serious to help potential budding entrepreneurs.

He added that SMEs should consult their banks and get their advice on how to go about in acquiring efficient working capital.

Meanwhile, Credit Guarantee Corp Malaysia Bhd (CGC) expects the demand for financing to rise but not at a robust pace as in 2007.

CGC managing director Datuk Wan Azhar Wan Ahmad said: “A good credit standing is important for any business to be bankable.

“For SMEs who depend heavily on financial assistance provided by potential credit grantors, the need to exemplify their creditworthiness takes priority.

“There is a greater need for SMEs to adopt sound credit culture if they were to gain the trust and confidence of potential credit grantor.”

Cost cutting measures
With the current economic environment, SMEs are also seriously undertaking initiatives to brave the escalating costs and put their businesses on a stronger footing.

Ladies undergarment maker Grand Bell Trading Sdn Bhd chief executive officer Joseph See said the company was strengthening existing polices and continuously adding value to its products and services to move into the next level of competition against international brands.

The company would continue to stress on customer focus via greater research and development programmes to enhance quality and to create brand loyalty.

ABX Express (M) Sdn Bhd country manager for Malaysia Mohamed Ali Noordin said: “We will continue to improve and upgrade our infrastructure and processes to be ready for the upturn.

“Our mobile scanners will continue to be rolled out countrywide albeit at a slower pace, while our sales team will be beefed up.

“Training will be stepped up, especially for our frontliners, and the Lean Management System will be adopted throughout our network.” - The Star

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