BY JOY LEE

(Left) Koong says the situation has not reached a detrimental stage yet. Hon has noticed an increase in requests by its clients to restructure loans beginning late last year.

SMEs are struggling to pay debts and find extra funds as banks get tough with loan approvals, JOY LEE reports.

SMALL and medium enterprises (SMEs) are increasingly struggling to meet their debt obligations, and may find themselves in prolonged financial constraint as banks tighten the belt on credit and the economy continues to languish.

Credit Guarantee Corporation Malaysia Bhd (CGC) noted that there has been an increase in requests by its clients to restructure loans beginning late last year.

“We saw more (requests) coming in at our nationwide branches from end 2015, maybe about 10& to 20% more than in 2014. But we are taking a more proactive role. If we find that they are one to two months behind in their payment schedule, we will offer to restructure the loan,” said CGC assistant vice president for branch performance department Hon Chee Yoong.

CGC facilitates SMEs’ access to financing through its guarantee scheme for companies seeking loans from financial institutions. The agency has also expanded its product offering to provide direct financing to SMEs.

Hon said there could be a possibility of more non-performing loans this year as SMEs may find it a challenge to keep up with their loan obligations. However, he noted that CGC is engaging its clients to mitigate that and taking on a more prudent approach with new applicants to ensure that they get quality clients.

According to Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM) national council member and chairman of SMEs and HRD committee Koong Lin Loong, most of the SMEs are not yet in dire need to restructure their loans.

“The situation has not reached a detrimental stage yet where they have to go for restructuring,” he said. However, he noted that SMEs have voiced their concerns over the lack of available funds as banks are becoming more prudent in approving loans.

He explained that SMEs needed to expand to cope with falling revenues. However, they lack the funds to expand, and slowing demand is putting a squeeze on margins and impeding cashflow.

“It is apparent that it is getting harder for SMEs to extend their loan and get additional funds, and it is hard to get new loans because SMEs need to prove their viability. Margins are becoming nano-margins because SMEs can’t increase their prices. Otherwise, their volume will drop sharply, and this will affect their cashflow. It is a double-edged sword,” said Koong.

As it is, cashflow has already been severely affected by the delay in GST refunds, he added.

SMEs also have to contend with a weak ringgit. While this will boost exports, Koong noted that a lot of small businesses were also importing their materials, which means higher costs for businesses. Although the ringgit has stabilised compared with its drastic decline late last year, it is still trading above RM4 per dollar.

“It has already been more than 10 months and the old stock has been exhausted. The cost of the new stock will be higher. And you also have higher rentals, higher cost of manpower and stiffer competition. If this continues for another six months, it could get very severe for them,” he said.

Koong noted that profits were not as important as cashflow for an SME as the latter affects operations and their ability to service their loans.

But the outlook is not all gloom and doom. Koong expects the tide to turn by the end of the year. And if it does, SMEs may still have some breathing space to pick themselves up for the coming year.