The SME Guide to Business Financing

The SME Guide to Business Financing

If you are part of a Singapore SME, it can be difficult to get funding for your business. According to this Business Times article, four in 10 Singapore SMEs lack support from financial
institutions. While certain banks are recently looking to grow their SME lending, financial support for Singapore SMEs doesn’t exclusively come from banks.

As an opener to our “Business Financing” series, we will start with ”The SME Guide to Business Financing”: helpful notes on the financial options available for SMEs. We will continue with a variety of articles meant to aid you in funding your SME. Throughout the month, we will also talk about how SMEs are evaluated for financing suitability and how to increase your chance of approval, the pros and cons of banks vs financial institutions vs crowdfunding, the different crowdfunding options available to help grow your business, and finally, choosing the right crowdfunding product.

1. Government-Backed SME Loans

Among government-backed loan providers, SPRING is probably one of the most important loan contributor to Singapore SMEs. SPRING is an agency under the Singapore Ministry of Trade and Industry. There are several choices of loans for SMEs offered by SPRING, including SME Micro Loans, SME Equipment and Factory Loans, SME Working Capital Loans, and Loan Insurance Schemes (LIS).

The SME Working Capital Loan was introduced at the Singapore Budget 2016 “to help local enterprises access unsecured working capital financing in a period of slow economic growth.” You can borrow up to S$300,000 per company and “the government will co-share 50 percent of the default risk of such loans with participating financial institutions, to encourage lending to Singapore’s SMEs.”

If you are part of a startup, SPRING offers a number of programs to support and nurture your business.

2. Bank Loans (with help from the government)

As this article highlights, banks can be reluctant to lend to SMEs. There are reasons for this: in certain market conditions, banks have a low appetite for risk. Lack of credit information on SMEs raises the cost of credit-risk assessment. Most oftenly, SMEs are unable to provide collateral.

However, with the backing of SPRING, some banks are now offering SME financing schemes. Examples include Standard Chartered’s Loan Insurance Scheme (LIS) and DBS’ SME Micro Loan.

3. Credit Cards/Mortgage

There are some old-fashioned alternatives to bank and government loans. You can borrow money on credit cards or take a mortgage on your home. You can also use your own savings or borrow from friends and family.

There are assorted reasons why some SME owners prefer these methods. These are simple methods. They may have been turned away by banks. Or perhaps they want to have full control of
their finances.

However, these means of financing come with their own risks. With personal savings, you can lose all your hard-earned money. With taking out a mortgage, you can lose your home.
Credit card interest is high. Borrowing from loved ones risks your relationship with family and friends.

4. Crowdfunding and Peer-to-Peer Lending Platforms

Crowdfunding and peer-to-peer lending are relatively new alternative financing. Crowdfunding generally refers to the funding of a creative project or business by a number of backers via digital technology. Often, backers are given rewards as an incentive to donate.

Peer-to-peer lending is an offshoot of crowdfunding. It works by matching investors and borrowers through an online platform. Borrowers take out a loan for working capital or other business necessities while investors who had collectively funded their loans earn interest-based earnings in return.

There are great advantages to peer-to-peer lending: its process is comparatively easy and requires no collateral, which makes it a great alternative to bank loans. However, you may
not get all the funds you asked for as not all loans get fully funded by investors.

You can read more about business financing via peer-to-peer lending here.

Stay tuned for more posts in our “Business Financing” series as we help you navigate how to fund your enterprise in a way that is right for you.