New rules so finance companies can help SMEs, Latest Singapore News - The New Paper

New rules so finance companies can help SMEs

This article is more than 12 months old

Rules that will help finance companies lend more to businesses are on the way.

The proposed changes unveiled yesterday include allowing finance companies to offer more services and lifting a bar on foreign takeovers of such firms - a move that sent their share prices rocketing.

This dovetails with recent suggestions from the Committee on the Future Economy. It urged that more be done to support the capital-raising needs of start-ups and small- and medium-sized enterprises.

These changes, announced by the Monetary Authority of Singapore (MAS) yesterday, will affect the three licensed finance companies here - Hong Leong Finance, Singapura Finance and Sing Investments & Finance.

The MAS said these firms complement banks in providing funds to SMEs, but their role can be enhanced. One change involves relaxing limits on their ability to offer unsecured loans.

Such companies can now only take on uncollateralised business loans that in total amount to 10 per cent of its capital funds. This will be raised to 25 per cent.

A borrower can now only take on uncollateralised business loan of up to $5,000 but the rule will be relaxed, allowing him to get loans of up to 0.5 per cent of the company's capital funds.

Singapura Finance chief executive Jamie Teo said the moves will allow finance companies to offer loans that were previously outlawed.

He said: "Project financing is uncollateralised. So if an SME wins a contract but does not have enough funds, it can now come to us."

Finance companies will also be allowed to offer current accounts and chequing services to businesses and join electronic payment networks.

In another major step, the MAS will lift its prohibition on a foreign takeover of a finance company - with conditions.

It will consider an application for a merger or acquisition if SME financing will continue as a core business.

A chief executive of a start-up said having greater access to uncollateralised capital is a welcome alternative to the "traditional route" young companies usually have to take to obtain capital, which is to sell equity.

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