In light of the COVID-19 pandemic, the Monetary Authority of Singapore (“MAS”) launched a new lending facility allowing SMEs to have access to capital at a lower cost in order to help businesses ease financial strain. The MAS SGD Facility for ESG Loans (“Facility”) is in partnership with Enterprise Singapore (“ESG”). The goal is to lend at an interest rate of 0.1% per annum to eligible financial institutions (“FIs”) to support their lending to SMEs under the ESG Loan Schemes.
The ESG Loan Schemes comprise the Enhanced Enterprise Financing Scheme – SME Working Capital Loan (“EFS-WCL”) and the Temporary Bridging Loan Programme (“TBLP”). The EFS-WCL helps Singapore-based small and medium enterprises (“SMEs”) access financing for their operational cash flow needs, while the TBLP provides additional cash flow support for companies in all sectors to meet their working capital needs. FIs participating in the EFS-WCL and TBLP can apply for funds at the Facility until April 2021.
The Facility complements the enhancements to the ESG Loan Schemes announced on 6 April 2020 as part of the Solidarity Budget, where the Government increased its risk-share of loans to 90%.
Eligibility and conditions for SMEs
The table below details the loan amount and conditions for both the EFS-WCL and TBLP.
| LOAN SCHEMES | MAXIMUM LOAN QUANTUM | MAXIMUM REPAYMENT PERIOD | RISK-SHARE | INTEREST RATE |
|---|---|---|---|---|
| EFS-WCL | SGD1 million per borrowerNote: Overall loan exposure limit of S$50 million per borrower group across all areas. | 5 years | The borrower is responsible to repay 100% of the loan amount. When defaults occur, the Participating Financial Institutions (PFIs) are obligated to follow their standard commercial recovery procedure, including the realisation of security, before they can make a claim against Enterprise Singapore for the unrecovered amount in proportion to the risk-share. | Subject to the PFIs’ assessments of risks involved. |
| TBLP | SGD5 million per borrower groupNote: Borrower Group consists of the following: a. Borrower; andb. Corporate shareholders that hold more than 50%of the total shareholding of the applicant company, and any subsequent corporate parents (all levels up), and subsidiaries all levels down. (Annual sales turnover and employment size is computed on a group basis.) |
For SME looking to apply for the schemes, they must fulfill the eligibility conditions set out in the table below.
| LOAN SCHEMES | ELIGIBILITY |
|---|---|
| EFS-WCL | Be a business entity that is registered and physically present in Singapore.At least 30% local equity held directly or indirectly by Singaporean(s) and/or Singapore PR(s), determined by the ultimate individual ownership.Maximum Borrower Group2 revenue cap of S$500 million for all enterprises.For “SME Working Capital”, the SME definition refers to Group revenue of up to S$100 million or maximum employment of 200 employees. |
| TBLP | Be a business entity that is registered and physically present in Singapore.At least 30% local equity held directly or indirectly by Singaporean(s) and/or Singapore PR(s), determined by the ultimate individual ownership. |
Conclusion
In pricing SMEs loans, FIs typically consider their cost of funds, underwriting and a credit spread to reflect the risk profile of the borrower. The ESG Loan Scheme has provided FIs funding at the low interest rate of 0.1% per annum over a two-year tenor, the Facility significantly reduces the FIs’s cost of funds for loans made under the ESG Loan Schemes.
According to an article by The Straits Time on 21/04/202, OCBC could potentially lower its interest rates on government-assisted loans with the facility to between 2 per cent and 3 per cent, down from 6 per cent or more at the beginning of the year.
The new initiative introduced by MAS would allow SMEs access to funds at a lower cost in light of the current COVID-19 pandemic, which in turn would assist the SMEs in their cash flows, sustain their operations and retain their workers.
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