SMEs facing financial woes soared 22%

Nearly half cites higher interest rates as the top concern.

This year a significant new challenge has emerged for SMEs to grapple with – access to financing and the cost of funds, according to the 2016 SME Development (SMED) Survey conducted by DP Information Group (DP Info).

First, the percentage of SMEs with financing issues has risen from 14 percent last year to 22 percent this year.

Second, financing is now the fourth biggest cost issue facing SMEs – behind manpower, materials and rent. The number of SMEs having difficulty coping with the cost of financing has leapt from six per cent last year to 22 per cent this year.

Of the SMEs with financing issues, 46 per cent nominate higher bank interest rates as the biggest problem while 19 percent have to provide more collateral to maintain their loans.

SMEs are also being squeezed harder by their suppliers with 34 per cent now indicating tighter access to supplier credit as an issue.

The impact of the tightening of credit available to SMEs is starting to have a significant impact on the cash flow of companies. Cash flow problems are now the top business concern of seven percent of SMEs – twice as many last year when it was just three per cent.

Commenting on the financing issues facing SMEs, Lincoln Teo, Chief Operating Officer of DP Info said: “Banks and financial institutions have become more cautious when lending to SMEs, and this is reflected in a higher cost of funds.”

According to Teo, a lack of access to affordable financing can trap SMEs in a downward spiral where they cannot grow without more funds, but cannot get funds without more growth.

“With both financial institutions and suppliers making access to credit harder, SME leaders need to have good management skills to avoid having cash flow problems. This means being more vigilant in the credit they offer and avoiding bad loans and defaults from customers,” he added.