Government Supported Financing Schemes for SMEs

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Government Supported Financing Schemes for SMEs

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Running a SME in Singapore is challenging. High rental costs, tight manpower market and no easy access to bank financing are some of the pertinent challenges most SME owners face when trying to scale their operations.

Heading into the last quarter of 2016, Singapore’s economic data has been gloomy and the weakening economic situation will present SMEs with a challenging landscape throughout 2016 and very likely deep into 2017 as well.

GDP growth for 3Q 16 grew by a dismal 0.6% weakening against the 2% GDP growth in 2Q 16 and 1.8% in 3Q 15. On quarter-on-quarter seasonally adjusted annualized basis, the economy contracted by 4.1%, reversing a 0.2% growth in the preceding quarter. Employment growth slows to lowest in 12 years with just 31,800 more people employed in end of 2015, with unemployment rate rising to 3.1% in Q2 2016.

Fortunately, the Singapore government is very supportive of the SME industry with a myriad of grants and government aided financing schemes available for SMEs to tap into. SMEs made up 99% of all enterprises in Singapore, contributing almost 50% of GDP and employs about 70% of the workforce. The government has in place various grants and financing schemes that strives to support SMEs and encourage a vibrant SME sector in Singapore.

Most of the government assisted financing schemes for SMEs are administered by Spring Singapore and IE Singapore, both government affiliated agencies to aid SMEs in their growth. Most of the financing schemes administered in the form of business loans have some form of risk sharing between the government and participating financial institutions. This will help encourage banks and financial institutions to spur credit lending to SMEs which traditionally are considered high risk segment to banks due to lack of credit information and higher default rates.

With the risk sharing element from the government, banks participating in these schemes usually (disclaimer: not definitely) will also offer lower interest rates for these schemes as well since the risk of default  will be co-shared by the government.

These government financing schemes will also help to improve funding liquidity in the banking credit ecosystem as most banks will generally slow down lending to mitigate risks during a downturn. With access to funding cut off, SMEs will face a double whammy with declining revenue and working capital squeeze. The government funding schemes therefore aims to encourage bank lending and lower capital costs for SMEs.

There are more than 12+ banks and financial institutions participating in some of the government aided financing schemes. Every bank and financial institution have their own credit risk assessment, interest rates and criteria which might vary widely at times. A competent SME loan consultant would be able to assist a SME to narrow down the financing options to identify suitable banks and financing schemes, saving time and interest costs for the applicant company.

You can also use our online SME loan Singapore comparison tool to see available loan options instantly.

Below is a summary of the various government financing schemes SMEs can tap on to expand their business:

Spring Singapore Micro Loan

  • For local SMEs with annual turnover $1M or less OR employees 10 or less
  • Minimum 30% local shareholdings (Singaporean or PR)
  • Maximum funding amount $100K
  • Repayment period up to 4 years

Spring Singapore SME Working Capital Loan

  • For local SMEs group annual turnover <$100M or group employment size < 200
  • Minimum 30% local shareholdings (Singaporean or PR)
  • Maximum funding amount $300K
  • Repayment period up to 5 years

Loan Insurance Scheme (LIS)

  • Credit insurance for SMEs to obtain trade finance facilities from financial institutions
  • A portion of the credit insurance is supported by IE Singapore
  • Minimum 30% local shareholdings (Singaporean or PR)
  • Financing of inventory, receivables discounting & pre-delivery working capital

SME Equipment & Factory Loans

  • Automating/upgrading of equipment or purchasing HDB/JTC premises
  • Up to $15M funding
  • Minimum 30% local shareholdings (Singaporean or PR)

In a recessionary economy, there will usually be a merger and consolidation phase. It is vital for businesses to ensure sufficient access to credit sources to ride out the slowdown. Cash flow is the life line of a business and strong funding sources will ensure stable cash flow to tap into opportunities in a down market and to restructure operations.

SMEs should tap into the available financing schemes and government supported business loans as part of their overall strategy to restructure and subsequently expand when the economy recovers.

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