The Peak Business

Source:- The Peak Vol 21 No.5:
Business - Growing Pains
business
At a recent roundtable,
Young Entrepreneurs'
five members of the
Organisation
(YEO)
discuss the challenges of raising money to
text ALVIN WONG
photos SIDNEY TEO
expand their businesses beyond local shores.
hat bigger
is better
ambitious or aggressive in trying to:
raisefunds. Itis a questionof need-'""
!
certainly rings true for
growing
businesses.
we are starting from a very small;
.J
While now seems the
base and are trying to penetrate]
best time for Singaporean
much larger markets.So by logic, we'
SMEs that seek growth -the
have to find sources of funding in:
country's economy is on the upswing,
order to penetrateregionalmarkets.If'1
,
f3mployment figures are steadilyimproving,
we don't, overseasexpansion is too'j
;
a slew of Free TradeAgreements
high risk a proposition."
i
is soon
to be
Leow Tze Wen, Director of!
concluded and the government ls Citystate
Management Group)
actively encouraging businesses to
Holdings and the head of its,
tap into regional markets -some
subsidiary Citystate
Lifestyle)"Com
members of the YEa think that the
which operatesthree fineoj
gap between regional expansion
dining restaurants,agrees: "If we use:
plans and generating funds for them
the US as an example, an SMEwho
remains operr.
has established itself in 20 cities;
there would find it much easier to.
..,
venture
NEED TO GROW
The entrepreneurs agree that funds
generated internally from their own
businesses would be the most ideal
source of capital for growth, but
point out that Singapore's limited
market makes it near impossible.
"The quantum of investment that's
required will overshadow whatever
we can generate internally," offers
Samuel Chia, Director and VicePresident of NYDC Inc Pte Ltd, a
chain of cafes and restaurants with
four pranches throughout Singapore.
"It's not even a question of being
126
abroad,
compared
to ai
Singaporean SME who has five;
restaurants here in a saturated4
market.So the hurdle is really much]
higherfor local SMEs."
Unlike larger corporations or:
MNCs that can afford to establisha
presence overseas without seeing
immediate returns, Leow says the
scenario is much more differentwith
smaller companies."Our principal inAust
a drinks manufacturer,
exports his products but doesn't
make money from it -he does it,
solely for branding," he illustrates.
"Someother company might wantto:
..
business
go into China just to have a market
presence, so the imperative is totally
different for these guys to go regional.
But is it possible for a Singaporean
SME to venture to China for five years
without making any money?"
PRIVATE FUNDING
Although securing funds from banks
appear to be the next logical solution,
the entrepreneurs reflect that the
scale of their businesses make them
unfavourable creditors in the eyes of
the banks. "The banks lend to the
top five per cent of the companies
here, which leaves the other 95 per
cent of the businesses out in the
cold," reveals Nicklaus D'Cruz, CEO
of the Organisation
of Amateur
Golfers (OAAG), a self-professed
'golf club without real estate' that
conducts social golfing events and
tournaments
catering
to high
net-worth individuals.
One
of the key reasons
for
banks to be wary of lending to
SMEs is the risk factor as they have
their own bottom lines to take care
of, reasons Henry Tan, Regional
Chairman of Asia Pacific Region for
Nexia Tan & Sitoh, an accounting firm
which is part of Nexia International,
one of the largest international
accounting and consulting firms
worldwide. "I come from a position
where we also help companies seek
financing. Very often, our assessment
is that it's definitely too high-risk to
loan to smaller SMEs," he says. "As far
as the banks are concerned, they see
low profitability and high debt. For a
bank to loan, say $500,000 to an SME,
the amount of work involved is simply
The good performance of a
company is one of the best ways to
convince banks and instil confidence
in them to make that loan, says Ricky
Chew, Managing Director of O.B.
Singapore Operations Pte Ltd that
runs the Fish and Co. chain of
restaurants
with branches
in
Singapore, Malaysia and Dubai. "I
didn't have any luck with getting
loans from banks for the initial three
years. Recently, we have had banks
providing us with contingency funds
not justifiable or worth their while."
While D'Cruz admits that
unlike New York or Hong Kong,
Singapore doesn't have a vibrant
venture capitalist or risk-taking
economy that allows banks to see
the value of lending to SMEs, he
feels that banks can try to understand
the operations of SMEs better. "Let's
say if (the banks) have more offices
in the frontline that take an interest
in knowing your business -what
you're selling, what you're buying,
who your customers are, and what
your profit margins are. From there,
I think it'll be easier for them to
decide if they can make that loan,"
he offers.
but we haven't exercised those yet most of our overseas restaurants
are franchises so our resources are
kept in line with our own corporate
development strategies," he relates.
He adds: "With my experience,
you don't need much funding in the
initial three years of operations. After
that, when you want to go regional,
you have three years of records to
prove your viability. Granted that the
start-up years are the most difficult,
if your business shows huge potential
for investors, then the funding will
come."
The recently established
SME Credit Bureau aims to provide
credit information and risk profiling
127
bus ness
for SMEs and thus improve the
credit climate. While the bureau
provides a transparent means for
banks to assess firms based on
credit ratings given to the SMEs,
some argue that it could instead
lead to more SMEs given the thumbs
down by banks. "I don't know if the
Credit Bureau will help the banks
because, more often than not, the
credit ratings come out looking bad
due to the nature of most SMEs' debt
from private investors and venture
capitalists, these guys might similarly
find it hard to put money into a
company without proper financial
finances," says--Tan.
accountability."
On independent
bodies
such as the Action Community for
Entrepreneurship
(ACE),
and
government-led
initiatives
like
Spring Singapore and International
Enterprise, Chew and D'Cruz feel
that while some of their programmes
are beneficial, SMEs need to be
DECISION MAKING IMPETUS
pointed
The roundtable participants share
their own views of how SMEs can
improve credit relations and seek
alternative financing as their next
best option. Leow suggests that
SMEs could be.', more mindful of their
own corporate~:housekeeping so as
to better present themselves to
potential investors.
A company that he took over
some time ago had financial records
that showed items such as birthday
party expenses and Rousehold
electricity bills charged to company
expenses, he re9alls. "Even if we
leave the banks out of the equation
and look at other avenues of funding
128
in the
right
direction
and
information made more accessible
them. "The government
assistance,
to
provides the
but we need
to know
where it is," says D'Cruz.
Although
edges
steps
Chia also ackriowl:-
that the government
to encourage
is taking
a more
suggestion to start an SME Ventur~
Capital Fund of sorts to allow
investors to put money in more than
one SME, thus spreading their risks,
Chia proposes a higher quantum of:
at least $1 million being made:
available to growing SMEs.
Similarly,
the
Economic
Development Feedback Group and
SME Feedback Group have mooted
ideas to make it easier for SMEs to
seek funding. Some of these include
setting up a resource panel with
representatives frp~ the Chambers,
the ASME or even retired entrepreneurs to provide adVice to banks on
loans to SMEs; adopting an Islamic
banking model where banks view
depositors as capital owners in a
partnership venture; and urging the
government to offer incentives to
financial institutions to lend to SMEs.
While Chia appreciates that
the government is engaging SMEs in
dialogues, he thinks that feedback
groups can only do so much to
contribute to effective solutions. "The
products that are being offered
haven't exactly hit the nail pn the
head. We exchange ideas but are
not engaged enough in the decisionmaking process," he reasons. "We
do not have the ability to fashion
solutions to suit our needs. Instead
of simply getting feedback, I think
the government can do well to take
a leap of faith to allow entrepreneurs
to have a say in how the solutions
turn out." &
robust
economy through entrepreneurship,
he feels that the available funding
benefits
mostly fresh start-ups.
instruments
are there but they're
really catered
aspirations,"
that schemes
..
"The
not
to SMEs with regional
he assesses.
to apply
have a maximum
quantum
He says
fot grants
of about
$50,000, and "the amount is not going
.to take us very far". Taking up on Tan's
~
TOWER
CLUB
SIN GA' 0 ". .