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A Portrait of Singapore SMEs in 2016

Small and medium-sized enterprises, more commonly known as SMEs, are prevalent all across Asia. In Singapore alone, 99% of businesses fall into the SME category. The SME sector is the backbone of the national economy. According to SPRING, local SMEs employ around 70% of Singapore’s workforce and contribute to nearly half of the nation’s GDP.

There were no official SME policies when Singapore became an independent nation. It was only in 1987 when the government created SME policies to help combat the 1985 economic recession, right after the Economic Committee noted SMEs’ significant contribution to the Singapore economy. The policies still affect local SMEs to this day.

On March 2016, the SME Working Capital Loan scheme was introduced by the government under its Budget 2016 Program to help local SMEs secure working capital financing. The government announced that it will co-share 50% of default risks of such loans to build confidence among banks and financial institutions that providing capital loans to more companies who need them is indeed worthwhile.

SME Trend in 2016: Overseas Expansion

In 2016, Singapore SMEs either began to grow their businesses overseas or expressed interest in doing so. According to a study by the Singapore Business Federation (SBF) last year, close to 60% of 400 respondents said that overseas business activities will drive growth for their businesses. Such growth is mainly driven by the increasing business activities in existing overseas markets. In the same survey, respondents stated that Asian markets are the main target of Singapore SMEs, with India, Indonesia, Cambodia, and China as the most desired target markets.

However, Singapore SMEs understand that there are problems and difficulties in executing a successful overseas expansion. Close to 60% of SMEs said “lack of familiarity with the overseas markets” and “difficulty in identifying suitable local partners” were their biggest challenges.

Alternative Solutions for Lack of Financing

Financial issues continue to obstruct local SME growth. To deal with lack of financing and working capital, SMEs tend to rely on business loans. Thankfully, the loan products available on the market today has more variety.

While bank loans may be the most common choice of credit for SMEs, alternative financing such as peer-to-peer lending via digital platforms are entering the mainstream. With loan products often specifically targeted for SME needs, P2P loans and digital loans are considered good opportunities to resolve financial problems such as lack of working capital and cash flow issues.

The trend for alternative financing is likely to change SME behavior when looking for capital, especially when FinTech (Financial Technology) products tend to be more user-friendly. Potential borrowers only need to use their smartphones to apply for a P2P loan or utilize financial products.

More financing options and expansion ambitions were the two main trends among Singapore SMEs in 2016. Perhaps the former will push the latter? We shall see as we dive deeper into 2017!

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