3 ways for SMEs to access financing to grow their businesses in the economic slowdown

April 21, 2020

Written by

Multiply Team

Personal Loan

It can be hard to obtain a business loan if a company's financial reports are declining and if cash flow is running low. If an SME is unable to meet the bank's strict credit criteria, they can opt for a personal loan instead. There are 2 regimes of personal financing options available in Singapore.

Licensed Moneylenders

Licensed moneylenders usually offer only small loans. These loans are heavily tied to your income capabilities. It can be as low as a few hundred bucks.

With licensed moneylenders, you can expect to get the loan approved and released much more quickly than banks. They do not focus on your credit history too much.

However, you usually end up paying a much higher interest rate compare to getting a personal loan from a bank.

You can find the list of approved moneylenders from Minister of Law's website as the link below:

List of Licensed Moneylenders In Singapore

Bank Personal Loans

With banks, you can get much higher loan amount, typically more than $10,000. Banks will only check the director's personal credit history and conduct instead of the company's financial health. If the director has an excellent personal credit history, personal loans might be easier to acquire from the bank.

Hence, this might be easier to obtain for some. However, it is essential to note that personal loans are recommended only if the company has no other way of securing business loans and needs a small amount of cash to tide them through a short period.

Taking a personal loan for your business can affect you, however, especially if you are looking to obtain a home loan. A high amount of personal loans can affect refinancing of existing personal residential property loans with the MAS TDSR policy in consideration. It is mandatory for an individual's monthly personal commitments to not exceed 60% of their monthly income when banks assess property loans.

In short, businesses should only consider taking a personal loan if they only need a small amount over a short period (3 to 6 months) and if they are not looking to apply for any home loans during this period. Websites such as moneysmart.sg and singsaver.com.sg can be used to perform comparisons between most banks' personal loan offerings and interest rates.

Invoice financing/factoring

Another option for SMEs is factoring. Companies selling to other companies on credit terms are best suited for this financing option.

Factoring involves three parties: business customers, financers, and the service provider. How factoring works is this: a financer can provide up to a certain percentage, typically 80%, of advanced cash to you, from invoices to business customers that haven't been paid yet. When the invoice is due, the financer may or may not directly collect the payment of the invoice from your customer. This is dependent on the invoice being disclosed or on a non-notified basis.

Any interest or fees will be deducted from the remaining 20% invoice value that was unadvanced previously and returned to you after the financier receives payment from the customer.

SMEs with a customer base consisting of large corporates, listed companies, or statutory boards with extended credit terms will benefit most from this method of financing. Factoring is less strict on credit profiles of the company and instead focuses more on the credit quality of the invoice they are buying over. The only downside is that the financing is only available after goods or services have been sold and are pending payment. In addition, factoring is not considered as debt on your balance sheet.

Tap on ESG’s Enterprise Financing Scheme (EFS)

Enterprise Financing Scheme is an umbrella scheme that assists SMEs financially in their many developing stages of business growth.

SME Working Capital Loan

The SME Working Capital Loan is introduced to help companies finance day to day general cash flow requirements. Singapore's Budget 2020 has announced that the SME Working Capital Loan will is enhanced for a year, from March 2020 to March 2021.

More information on the loan can be found here.

SME Fixed Assets Loan

The SME Fixed Assets Loan finances local or overseas purchases of permanent assets such as equipment and machinery, as well as construction and development costs of factories and business premises. Enterprises seeking to invest in niche hi-tech or customised machinery that enhances productivity can consider this loan.

More information on the loan can be found here.

Venture Debt Loan

Venture loans are designed to finance creative, high growth startups that do not conform to the traditional SME lending profile. This loan is best suitable for startups that may not necessarily have high cash flow or assets to use as collateral.

More information on the loan can be found here.

Trade Loan

This loan finances a companies’ trade needs. It funds the following:

  • Structured pre-delivery working capital (revolving working capital)
  • Factoring (with recourse) / bill of invoice / AR discounting
  • Local and overseas working capital and trading transactions
  • Import of inventory/stock financing

More information on the loan can be found here.

Project Loan

The project loan provides companies with financial support to fund secured overseas projects. Funding under this loan can also be used for the financing of fixed assets (equipment, machinery) meant for the project, apart from working capital.

Companies can also combine trade financing and working capital financing under this scheme to fund their projects. There is a maximum loan quantum of up to $50M.

More information on this loan can be found here.

Mergers and Acquisition Loan

This loan is suitable for larger SMEs looking to obtain a local or overseas enterprise and can be used for acquisition funding. Venturing into foreign markets should be the main aim of the merger and acquisition. A maximum loan quantum is capped at $50M for this loan scheme.

More information on this loan can be found here.

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Multiply Team

Multiply brings a fresh perspective to financial services. We offer simple and flexible financing for smaller businesses.

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