Samuel Chan, The Straits Times, 3 April 2017

"When SMEs face problems with their cash flow, many of them tend to borrow in order to keep their businesses afloat. This often leads to obtaining loans to pay for other loans, which gets more creditors involved." ~ Credit Counselling Singapore Chairman Kuo How Nam.

Struggling small and medium-sized enterprises (SMEs) would benefit from an umbrella organisation to coordinate the restructuring of debt, according to registered charity Credit Counselling Singapore president Kuo How Nam.

The proposed organisation would work with all the creditors involved to assess the financial situation of the SME and develop a reasonable and practical restructuring plan.

This is important because the financial institutions which provide loans often have no way of verifying the amounts owed to the other creditors involved and do not consider additional personal debt on top of the business loans, said Mr Kuo.

Local banks confirmed that the debt owed by business owners to other financial institutions cannot be reviewed by the individual institutions due to banking secrecy.

The banks added that the only time all creditors get involved in the restructuring process is when the owners approach the bank through a third party to conduct debt reduction negotiations on their behalf.

This problem could result in multiple restructuring plans with various financial institutions which the business owner may not be able to fulfil.

"When SMEs face problems with their cash flow, many of them tend to borrow in order to keep their businesses afloat. This often leads to obtaining loans to pay for other loans, which gets more creditors involved."

"The SMEs may eventually start struggling to pay back their obligations. Without a consolidated restructuring plan, this often leads to a default on the SMEs' end," he added.

The suggestion may have come at an appropriate time, as sluggish economic conditions have affected SMEs in the last 12 to 18 months, said Mr Kurt Wee, president of the Association of Small and Medium Enterprises.

"I would not be surprised if the default rate is higher than in previous years. Many firms, especially those in the marine and oil and gas industries, have been downsizing," he said.

Mr Kuo also envisions the proposed umbrella organisation giving advice to struggling SMEs before they become too laden with debt. "The organisation can talk to SMEs to provide them with a reality check on whether or not their businesses are still viable. If they are not, then the organisation can help them prevent unnecessary losses," he said.

In a business climate where risk-taking is encouraged, Mr Kuo thinks the Government should take the lead to help failing SMEs. "Studies have shown that businesses have a high rate of failure. If the Government wants to encourage people to start businesses, they will have to help them when they fail," he said.

While more support may be given to prevent SMEs from acquiring excessive debt, UOB's managing director and country head of business banking in Singapore Mervyn Koh believes that some responsibility lies with the SMEs as well.

"While a business loan can be used to manage cash flow and cover any unexpected expenses, we advise SMEs to be prudent with their borrowings as loans should technically be used to grow and develop their core business. To mitigate cash-flow issues, SMEs should look at being disciplined in managing their account receivables," he said.