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.
Government-Backed SME Loans
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
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. If you would like to know more about SPRING’s startup program, read
the link here.
Bank Loans (with help from the
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.
And often, 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
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
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.
Crowdfunding and Peer-to-Peer
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
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.