Helping SMEs' long-term growth

The govt seeks to help build expertise and scale long-term - from startups to growth companies

SMALL and medium enterprises (SMEs) seeking short-term measures to relieve upward cost pressures or labour market challenges might have come away disappointed from the Budget 2019 announcement. While no short-term fixes were announced, Budget 2019 pushes on the journey of transformation with a laser focus on three key thrusts: to build deep enterprise capabilities, build deep worker capabilities and encourage strong partnerships within Singapore and across the world.

For SMEs, this means measures to help them build expertise and scale, with a longer-term view.

SMEs comprise a diverse group of companies at various stages of development - from startups, to growth companies with access to finance as a primary concern, to larger enterprises with more complex needs. Budget 2019 recognises this and continues to introduce new initiatives and extend existing measures to address the different needs.

For example, Scale-up SG, a partnership between Enterprise Singapore and the private and public sectors is designed to work with SMEs to innovate, grow and internationalise; while the Innovation Agents programme offers experienced industry professionals with deep expertise in technology and business to provide mentorship to SMEs in the use of technology in their businesses.

For SMEs looking to embrace and harness technology, the SME Go Digital programme will also be useful in helping them adopt and grow digital capabilities. The programme has now been expanded with the roll-out of the Industry Digital Plans to more sectors and widening of pre-approved digital solutions to include more advanced digital solutions. SMEs seeking to grow and regionalise can also tap trade associations and chambers (TACs) as a source of guidance. The TACs are now further enabled with the new Local Enterprise and Association programme, which will see the development of five-year roadmaps with Enterprise Singapore to drive industry transformation. There are also opportunities for SMEs to draw on the TACs' local and international networks to establish connections and gain knowledge of new markets.

Other measures that are more transitional in nature to partially alleviate the cost burden on SMEs include the enhancements to the Enterprise Development Grant (EDG) and Productivity Solutions Grant (PSG), and the extension of the Automation Support Package.

Overcoming barriers to adoption

A barrier that may hinder SMEs from taking advantage of the schemes and opportunities is a lack of understanding of the assistance available. This is not surprising. While startups and smaller SMEs seeking access to financing have had numerous schemes to tap, such as the SME Working Capital Loan, SME Micro Loan, and SME Micro Loan for Young Companies, it can create confusion as they determine the options most viable for them.

As well, SMEs with limited resources may face inertia due to the various requirements of the schemes, or are held back by the uncertainty of success based on past experiences with failed applications for assistance.

The government recognises the complexity and has taken the step to streamline eight existing SME financing schemes into one - the Enterprise Financing Scheme (EFS). The EFS will provide financing means to cover the areas of working capital, fixed assets, trade, venture debt, mergers and acquisitions, and project financing. Aside from making it easier for SMEs to apply for the scheme, with Enterprise Singapore partnering banks to co-share 50 per cent on loan default risks (increased to 70 per cent of the risk for companies incorporated for less than five years), it is expected that SMEs will enjoy overall reduced interest costs.

For schemes to be effective in helping SMEs to build deep capabilities, the qualifying conditions should not be too onerous. Otherwise, the efficacy of the schemes may be undermined and deserving SMEs may not qualify.

For example, to apply for the grants under the EDG scheme, applicants are required to complete a project proposal detailing their key business activities, customer segments and markets, growth and internationalisation plans, and explanation of how the project will help the company build new capabilities and contribute to growth. SMEs that are already facing resource constraints will have difficulties in putting up a requisite project proposal for the application.

With Budget 2019, applicants will need to further demonstrate how the proposed project will result in positive outcomes for its workers. This may further dampen the attractiveness of the EDG scheme, given the onerous requirements.

Further streamlining requirements

To encourage more SMEs to tap these schemes, the government can consider further streamlining the existing qualifying requirements of the various schemes such as the enhanced EDG and PSG schemes for smaller SMEs that are resource-constrained. For example, the EDG scheme could be streamlined to provide grants below a certain amount, such as S$20,000, to applicants without the need for detailed project proposals. SME Centres can also be deployed to help SMEs complete the project proposals through interview sessions.

In addition, the government can consider streamlining the various existing schemes for SMEs into one that is targeted at startups and smaller SMEs below a certain turnover. As with any transformation, there are invariably challenges but also new opportunities. The government has invested heavily to bring SMEs onboard the journey of transformation.

While continual review of the various support schemes should be undertaken, that does not diminish the urgent imperative for SMEs to be proactive in working together with the different agencies and leveraging the available schemes to innovate, grow and develop partnerships in Singapore and beyond to capture new opportunities.

The writers Chai Wai Fook and Lee Vin Wee are partner, Tax Services and senior manager, Business Tax Advisory at Ernst & Young Solutions LLP respectively.

The views reflected in this article are the views of the authors and do not necessarily reflect the views of the global EY organisation or its member firms.