Hit the mark: With the right tactics, SME owners can survive and maybe even scale their businesses despite the pandemic. Photo credit: Pexels
In the last few months, virus variants have been wreaking havoc in India, Taiwan, Thailand, Vietnam, and of course, Singapore – exerting great strain on economies and impeding their recovery.
In Singapore, SMEs are struggling to stay afloat amid a depressed, uncertain outlook and stricter measures as they wait for the outlook to improve and things to get better.
But despite the challenges ahead, there are plenty of lessons SME owners can take away from the pandemic, says Mr Zeng Renchun, Chief Executive Officer, Singapore of IFS Capital Limited, a member of PhillipCapital.
In a recent interview with MONEY FM 89.3, Mr Zeng said SMEs have always faced more difficulties when it comes to accessing credit, but the pandemic has amplified some of these financial challenges.
“Throughout this year, SME owners have been fire-fighting on multiple fronts – starting from supply chain disruptions, to reduced consumer demand, changing consumer preferences, and to manpower crunches – just to name a few.”
The far-reaching impact of the pandemic has had serious economic and financial consequences.
Firstly, the two-month circuit breaker that was enforced in Singapore last April, as well as the phased reopening of the economy, posed financial challenges to most SMEs, said Mr Zeng.
Noting that while some SMEs quickly transitioned to online services and sales, there were sectors and businesses that had “little to no revenue” during the two months.
“The government acted quickly with relief measures, and while they were helpful to some extent to cover overheads, they were not sufficient to ride out the long-term business impact.”
Secondly, firms – especially those in the construction, F&B and hospitality industries – have also had to contend with new costs borne from having to adhere to safe management requirements, restrictions to operating hours, and hygiene measures.
“With this in mind, SMEs will need to plan ahead for alternative funding solutions to solve possible short-term financial concerns,” he said.
Mr Zeng also observed that with Singapore entering its “deepest recession on record”, business sentiments among SMEs have also fallen to a low.
He said: “Most SMEs are adopting a wait-and-see approach, with aspirations pertaining to growth and expansion remaining neutral.
“There will be some business owners that will have to decide between injecting fresh capital to sustain the business while waiting for the environment to improve, or to cut losses, and conserve financial and mental capital for other opportunities.”
That said, not all is lost. With these tips, SME owners can take active steps to prepare for business recovery as Singapore learns to live with the pandemic.
The old saying “cashflow is king” still holds true today. Cashflow has become a key concern for many SMEs, as there is a tendency for business owners to underestimate company’s short- and long-term liquidity requirements, he explained.
“One key lesson is that companies will need to build funds or a buffer for rainy days, and plan ahead with alternative funding solutions.”
Secondly, Mr Zeng cited the importance of risk management and having a greater awareness of downside risks.
This is because the economic uncertainties and cashflow problems that many SMEs face today are likely to persist for a while.
“For the medium-term, there is a need to minimize and eliminate any risks that may permanently put SMEs out of business. I call this the ‘game-over’ type of risks.
“SMEs that were resilient and generally aggressive in pursuing asymmetric risk-return opportunities, will now need to balance between probabilities and possibilities.
“It is important to consider and minimize, and try to eliminate ‘game-over’ type of risks for sustainability and build resilience for their businesses.”
This starts with SME owners understanding i) the funding gap for their business and the purpose of financing requirements; and ii) the financing options available in the market, and how to match them with the purpose and time frame required.
These are not easy tasks, but Mr Zeng says help is available to SMEs through various digital platforms.
He encouraged SMEs to visit Lendingpot, a digital platform built by a team within IFS Capital that is passionate about SMEs and their needs.
“The Lendingpot team engages the SME community with regular content and guides: for example, info packs on the available government COVID-19 support schemes, useful information on how to position the company to be able to better secure a loan from financiers, and a SME Champions series that profiles personal stories about SMEs.
“All these services are free of charge, and have been very popular with SMEs in helping to build financial literacy, and enabling SMEs and financiers to connect and find a solution to cashflow problems.”
Financial inclusion is key, stressed Mr Zeng.
This involves having access to “appropriate, affordable and timely financial products and services” to reduce barriers to growth and success.
“With digital innovation, fintech, and the impending introduction of digital wholesale banks by 2022, financial inclusion for SMEs has improved significantly.”
For instance, a neutral platform like Lendingpot – built with the aim to bridge the information gap between SMEs and financiers – connects small businesses with more than 45 financial institutions in Singapore to find the best business loans for them.
SMEs should invest effort to maintain relationships with financiers, and build trust through transparency and track records over a period of time – especially crucial during temporary cashflow crunches.
They should also make their businesses known to financiers, said Mr Zeng.
“Entrepreneurs tend to focus more on communicating growth opportunities about their companies, but most financiers will place more weight on the historical performance of a business.
“It is important to communicate your business needs and goals to financiers so that they can provide the right advice and approach, as well as help you understand the various solutions that are available today.”
He recommended that SMEs start by building a comprehensive financial and business profile over time that can be shared promptly and transparently with financiers.
This is the shortened version of an article that was first published in Lendingpot’s July 2021 newsletter.
Belinda loves thinking about random stuff, and collecting useless bits of facts and trivia. She often roots for the underdog, and believes the world needs more happy endings.
