EVERY year, the SMI Association of Malaysia receives complaints from its members about the difficulties of securing credit.
President
Chua Tiam Wee says while companies with good track records do not face a
major issue in this area, start-up companies and those with
less-than-rosy track records continue to have doors shut on them.
Wee
suggests two solutions. The first is his call on banks to evaluate the
applications of small and medium enterprises (SMEs) carefully and to try
to understand the nature of their business and industry.
The second is a call to empower SME Bank to collect deposits, along the lines of a commercial bank.
“This may then help the bank to increase lending to SMEs,” he says.
Chua says SME Bank currently relies on Government funding and its paid-up capital of about RM1.35bil is very small.
How does a bank rate the credit worthiness of an application?
AmBank
(M) Bhd retail banking managing director Datuk Mohamed Azmi Mahmood
says banks would generally assess five credit factors of an applicant.
These are character, capacity, capital, condition and collateral.
Azmi
says character refers to the borrowers’ “willingness” to repay while
capacity refers to their ability to generate adequate cashflow to repay
the loan.
The remaining three factors – capital, condition and
collateral – can be mitigated or compensated by the favourable economic
climate and government-guaranteed schemes such as those under Credit
Guarantee Corp (M) Bhd (CGC) and Syarikat Jaminan Pembiayaan Perniagaan
Bhd, he says.
Azmi says borrowers must show good character,
management competency and ability to repay existing loan obligations and
other creditors.
“The lack of credit history for those applying
for bank loans for the first time can be mitigated and compensated by
relevant supporting documents such as updated financial accounts, bank
statements and letter of award,” he says.
He says it is important
that SMEs maintain proper book keeping to ensure that these documents
are available when required, especially their audited financial
accounts. “Loan applications from sectors or industries that the
Government is promoting will also have a better chance of having their
applications approved,” Azmi says.
He says SME loans make up a fourth of AmBank’s loan portfolio to corporates and enterprises last year.
Hong
Leong Bank Bhd group managing director Yvonne Chia says loan
applications that show good repayment capacity, acceptable business
risks and account performance track records will be considered
favourably.
She says financial assistance to SMEs comprised 40% of Hong Leong Bank’s business banking portfolio as at March 2010.
Meanwhile,
HSBC Bank Malaysia Bhd deputy managing director (commercial banking and
director sales) Thomas Varughese says one of the main reasons to reject
an application is the lack of financial information that can show the
sustainability or viability of a business.
For instance, he says,
many SMEs do not pay enough attention to managing their financial
position to portray a picture of success, or to show evidence of
business continuity.
This makes it difficult to approve the application, Varughese says.
“Poor credit history of the SMEs, including that of its directors and/or guarantors is another issue,” he says.
Varughese
says if the SMEs or their associated directors or guarantors have
exhibited poor credit history, which is shown in missing payments on
their existing loans including personal loans and credit cards, this
will give a negative impression on the overall credit assessment.
To secure a loan, he says, SMEs should have a detailed business plan that explains why the loan is needed in the first place.
“It
will also be helpful to provide information about the business (company
or management profile), nature of the business and financial statements
or accounts for at least the last two to three years,” he says.
Varughese
says the provision of well-thought-through cashflow statements can also
provide further evidence for the need for the financial assistance,
adding that SMEs may visit HSBC website for guidance on how to apply for
loans.
He says that as of last year, more than 22% of HSBC’s loan portfolio is SMEs loans.
Varughese
says the bank is not keen to finance businesses that may be considered
as unsustainable or destructive to the environment.
“At HSBC, we
believe that being a sustainable business is not only about delivering
profitable long-term growth, but also about maintaining a stable
environment and building healthy, educated communities,” he says.