Letters to Editor
Published Date: 01 May 2020

Response to "Loans to SMEs: Impose conditions rather than seek personal guarantees" - The Straits Times, 28 April 2020 by MAS and ESG


Dear Editor,

We thank Mr Danny Quah Wei Sheng for his feedback on the effectiveness of government’s financial support schemes to small and medium-sized enterprises (SMEs) (“Loans to SMEs: Impose conditions rather than seek personal guarantees”, 28 April 2020).

Mr Quah asked if the interest rates on loans to SMEs should be closer to the 0.1% rate at which the Monetary Authority of Singapore (MAS) lends to eligible financial institutions under the MAS SGD Facility for ESG Loans.  Under this Facility, MAS lends Singapore Dollars (SGD) to banks and finance companies at an interest rate of 0.1% per annum, for two years, to support their lending to SMEs under the Enterprise Singapore (ESG) loan schemes.  But this does not mean that the final lending rate to SMEs will be 0.1%.

The price of an SME loan has a few components.  The first is the cost of funds to the lender; here MAS’ low-cost funding works directly to reduce the price of the loan. The second component is a credit spread to reflect the risk profile of the borrower; here the government’s 90% risk-share helps to reduce the credit spread, allowing for a lower final lending rate. Then there are costs incurred by the lenders in administering the loan. 

The final lending rate is therefore higher than 0.1% but much lower than it otherwise would have been, reflecting the combined impact of the measures by the government and MAS. For example, under ESG’s Temporary Bridging Loan Programme, borrowing costs have come down to around 2-3% on average, compared to other unsecured working capital loans to SMEs that typically exceed 6%.

Mr Quah also questioned the need for personal guarantees. The ESG loans are intended to support viable businesses experiencing temporary cashflow difficulties. The participating lenders in the ESG loan schemes perform credit assessment and due diligence on borrowers. As the loans are generally not backed by collateral, the personal guarantees are a statement of the borrower’s commitment to repay the loan. This helps the lender to make the loans accessible to more borrowers.

The government is closely monitoring the effectiveness of the support measures implemented thus far and will continue to adjust the schemes as necessary, to ensure that our SMEs get sufficient support.

Jerome Lee (Mr)
Director (Corporate Communications)
Monetary Authority of Singapore

Alethea Nah (Ms)
Director (Corporate Communications)
Enterprise Singapore