SME Discovering It Tough to Acquire Bank Loans – Truth Or Understanding?

In the past week, I came across a couple of newspaper articles addressing the issue about the problem for Small and Medium Enterprises (SME’s) to obtain bank loans that I find curiously confusing.Bank Negara said that banks are over careful even with the central bank provided assurance that adequate liquidity in the banking industry and have the power to provide. While Bank Negara had led the shift by cutting the overnight policy price and legal reserve dependence on reduced cost of funds, many banks aren’t delivering their “over” cautious position. It had been also claimed that banks are already reviewing credit risk profile of existing loans and determine if these SME firms could still match the repayment plan, or if their assessment reveals a higher default risk profile, the banks may either reduce the facility or in certain significant situations, contacting lender the facility by demanding immediate repayment. This motion will donate to economic decline and financial meltdown, globally.The Association of Banks in Malaysia (ABM) taken care of immediately this opinion that the perception is incorrect. In accordance with ABM’s chairman, included in the ongoing mortgage reviews, banks will need to examine and decide if credit collections directed at the customers are fully employed or decreased. That is to permit greater affect other credit activities. He has also commented that there has been an overall escalation in SME loans qualifying at 31 December 2008 as compared to the previous year.Comments from these newspaper articles are all distributed by leaders of the respective organization. Used to do some extended casual results from some rank and file employees, largely loan officers from both local and foreign banks. Their comments generally are as follows:-They received instructions from higher management to freeze many loan application from SME’s because the middle of 2008.
Collateral needs are really improbable. Example, one-for-one money collateral (say set deposit) for the center (say overdraft or term loans).
Trade lines such as for example lender guarantees and Letter of Credits are no more commonly accepted by the banks, even these lines issued by international well-known banking institutions.
Banks are moving toward retail loans such as housing loans, bank cards, personal loans and car loans. The reason being the amounts are much lower and their danger exposures are spread over a wider client base.
Lately, I had dinner with 2 very interesting people, due primarily to the businesses their employed by. Becoming an “outsider”, I got to hear and enjoy opinions from both these men, both are in the middle management in their respective employers. One of them is doing work for home developer while the other person works in an as a risk analyst, responsible with proposing if a loan can be approved.From the industrial thing watch level, banks are likely to give “umbrella when it rains.” My friend from the commercial organization said that in reality, if they need these facilities most banks offer mortgage when not essential, and withdraw the facilities. Banks do not help the banks inside their hard situations. Actually, banks produced more difficulties for them by reducing credit collections, challenging fast loan repayments, and threatening to call for default when their demands are not met.My friend from the lender immediately replied, commenting that banks are also commercially driven, and that they have to defend themselves to make sure survival. An easy problem is their risk assessment can give rise to mortgage default. You can find too many activities within the banking industry that loans approved to seeming good companies became overdue due to many unscrupulous businessmen who use the funds for his or her personal advantages at the detriment of the good companies. For that reason, the banks have to be very careful when researching loan programs to minimize the standard risk.From this easy meal, I obtained to recognize that regardless whether it is truth or perception that SME’s are finding it hard to get bank loans, underneath line is that SME’s and banks have their particular roles to play within the commercial world, for survivability, profitability and responsibility to interested parties.

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