Business Loans

COVID-19: Singapore SMEs Can Now Apply To Defer Payments On Their Property Loans

Eric Koh
April 1, 2020

The Monetary Authority of Singapore (MAS) announced a series of measures on 31st March that aim to help ease the financial strain and temporary cash flow difficulties caused by the COVID-19 pandemic on individuals and SMEs.

These measures, made together with Association of Banks in Singapore (ABS), Life Insurance Association (LIA), General Insurance Association (GIA) and the Finance Houses Association of Singapore (FHAS), complement the series of initiatives in the Singapore government’s main and supplementary Budget announcements.

Assistance will be provided on these 3 main areas:

  • Helping individuals meet their loan and insurance commitments;
  • Supporting SMEs with continued access to bank credit and insurance cover; and
  • Ensuring interbank funding markets remain liquidated and well-functioning.


Supporting SMEs

MAS states that SMEs may now opt to defer principal payments on their secured term loans until 31st December 2020 (subject to the banks’ and financial institutions’ approval). SMEs may also be able to extend their loan tenures by up to the corresponding principal deferment period.

In this case, SMEs are still required to make monthly interest-only payments. For this arrangement, interest will only accrue on the deferred principal amount and no interest will be charged on the deferred interest payments.

You can calculate the amount saved by using an amortization calculator. Depending on the loan arrangement, SMEs may be able to substantially reduce their monthly repayment.


What are the downsides to this arrangement?

While reducing current liabilities is great, deferring principal payments will increase future obligations.

SMEs will be required to make a higher monthly repayment amount if the tenure of the loan remains the same (as there would be lesser months to repay the principal of the loan). Alternatively, if SMEs prefer to pay the same monthly repayment amount, they may choose to extend the tenure of the loan by the corresponding principal deferment period, increasing the total repayment period.

Not to mention that if SMEs take up this arrangement, they will be paying a higher total repayment amount as these “interest-servicing periods” do not contribute to bringing down the principal of the loan. Instead, they serve as “extra payments”.


What is the fine print of this arrangement?

Only secured term loans are covered under this scheme and not all SMEs will be eligible for it.

Although there may be other types of securities, secured term loans in Singapore usually refer to loans secured by property collateral. This could refer to property purchase loans, property refinancing loans, or term loans with property collateral.

While individuals with unsecured credit facilities (credit cards, unsecured loans or overdraft facilities) will be able to convert their outstanding balances to term loans with reduced interest rates capped at 8%, it is not clearly stated if SMEs will be given the same benefit for their unsecured loans.

These measures are also ultimately subject to the approval of banks and finance companies where they are likely to be only available to SMEs that are not currently in arrears.

It may also depend on the banks’ or finance companies’ assessments of the quality of the SME’s property collateral. This means that: (a) if the property value has decreased since the issuance of the loan or, (b) that if there are any reasons for the financial institutions to believe that value of the property will decrease in the future, they may not agree to defer principal payment.


SMEs are very much on the forefront of the government’s mind

SMEs are a key driver of Singapore’s economy. 90% of all enterprises in Singapore are SMEs and the sector accounts for 65% of total employment, while contributing almost 50% to the economy.

The SME sector is also the hardest-hit sector in the COVID-19 pandemic due to its small size and limited cash flow.

The Singapore government’s overriding objective is to reduce unemployment and prepare Singapore’s enterprises for the eventual economic rebound. With this in mind, we can expect more measures by the government to aid SMEs should the pandemic situation worsen.


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About the author

Eric Koh is passionate about helping SMEs grow and has spent years interacting with business owners at OCBC and IFS Capital. He is interested in 70s rock ‘n roll, the odd novel and copious amounts of historical trivia.

COVID-19
SMEs
business
Defer Payment
Property Loans
SME Loan
business loan

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