1 March 2021

How the banking industry has supported SME disruption

To survive and thrive against the economic headwinds brought on by the COVID-19 pandemic, businesses, including SMEs that make 99 per cent of enterprises locally, have had to adjust and transform. Banks have played a critical role as a trusted advisor to businesses to help them to mitigate risk and navigate the challenges of working capital, supply chain management and digitalisation.

Managing risk and cash management

With sluggish revenues, tightening liquidity and travel freezes in play, many SMEs needed to quickly reconsider how they were managing their risk, liquidity, and cash management approach. Businesses needed to be on top of things like their cash inflows and outflows, their liquidity position, monitoring of receivables and real-time reconciliation to better understand their cash positions.

Businesses also looked to tap into government support measures to enhance their liquidity. These include the ability to take advantage of measures such as the SME Working Capital Loan – which increased from $600k to $1 million, as well as accessing the Temporary Bridging Loan Programme for additional headroom to tide their businesses over.

Digital transformation more important than ever

The pandemic has accelerated the need for digital transformation in all businesses with traditional channels being interrupted. Business leaders have had to review their business preparedness and ability to operate digitally to optimise operations, increase the business’ scalability, and ability to tap into opportunities when they arise. This has been further emphasized by the government’s support, with various schemes, initiatives and resources such as the SMEs Go Digital Programme and the Start Digital pack readily available to support SMEs in raising productivity levels, drive business competitiveness and seek new growth opportunities.

Keeping supply chains intact

Businesses were also forced to reimagine how their supply chains would look like in the grander scheme of their business strategies. In the initial throes of the pandemic, SMEs had to consider how they could renegotiate the terms of trade and negotiate for open account terms of issue letters of credit to manage their liquidity.

SMEs were also considering alternate financing options to free up working capital, such as supply chain finance, which is a set of automated solutions that allows buyers to provide their suppliers with the opportunity to receive early payment on approved invoices at a discount.

Crucially, the disruptions in supply chains have highlighted the case for SMEs to digitalise and implement robust online commerce frameworks to enable them to identify hidden dependencies or potential interruptions in their supply chain.

A contribution piece by Li Lian Ng, Head of Business Banking, HSBC Singapore was first published in Today’s Manager, a Singapore Institute of Management, publication, on 1st March 2021.