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.

Singapore’s GDP growth for 2019 was a mere 0.7%, the slowest for the past 10 years. Weighted down by the US-China trade war in 2019, the Covid-19 outbreak is set to depress 2020’s economy prospects further.

Singapore is already one of the most expensive city in the world to conduct business in and local SMEs constantly have to grabble with high overheads and costs. Fortunately, there are a myriad of grants and government aided financing schemes SMEs can tap into to help alleviate working capital and cash flow pressure.

SMEs made up 99% of all enterprises in Singapore, contributing almost 50% of GDP and employs about 70% of the workforce. Due to lack of resources, information and time, most small business owners might not be aware of the various grants and financing schemes SMEs can tap into.

Most of the government assisted financing schemes for SMEs are administered by Enterprise Singapore, a combined entity that merged both Spring Singapore and IE Singapore, to champion the growth of SMEs.

Most of the financing schemes, administered in the form of term 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.

Securing a business loan in Singapore is no easy feat for most SMEs and such financing schemes definitely help to improve approval chances.

With the risk sharing element from the government, banks participating in these schemes might also offer lower interest rates on a SME loan since the risk of default is now co-shared.

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 the engines of funding access being throttled, 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 financing costs for SMEs.

There are more than 14 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.

SMEs are encouraged to do their own research or engage competent financing consultants to find out which schemes are suitable for their requirements.

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

SME Micro Loan

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

*This scheme has since ceased, superseded by the SME Working Capital Loan.

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 $600K (enhanced after Budget 2020)
  • Repayment period up to 5 years
  • Available till March 2021

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 Enterprise Singapore
  • Minimum 30% local shareholdings (Singaporean or PR)
  • Financing of inventory, factoring/receivables discounting & pre-delivery working capital

Enterprise Financing Scheme (EFS)

  • Consolidation and streamlining of 6 different financing schemes under one umbrella
  • Each financing schemes are targeted at enterprises at various growth stage

Aside from the above schemes, Enterprise Singapore offers many other financing schemes and grants to support local startups. One grant SMEs should look at is the Enterprise Development Grant.

The grant can be tapped into to help SMEs grow and transform their current business model in this age of technology and disruption. Targeted at 3 main key pillars, the grant aims to help SMEs deepen their core capabilities, spur innovation and productivity and to improve access to overseas markets.

On the financing aspect, SMEs sourcing for funding should definitely explore the Enhanced SME Working Capital Loan scheme if not already done so. The scheme is scheduled to end in March 2021 and allows up to maximum financing amount of up to $600K per company, subject to participating financial institutions’ credit approval.

With effect from October 2019, Enterprise Singapore will combine all their financing schemes and streamline them under one consolidated Enterprise Financing Scheme (EFS). This scheme will better help SMEs access government assisted financing at every stage of their growth phases.

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.

Small business owners should also take some time to educate themselves on the nuances of SME financing and the financing instruments most suitable to deploy. Financing is not rocket science, however most SME owners are too time-starved to find out more on the available options in the market.

SMEs can consider tapping into the available government supported financing schemes listed here as part of their overall financing strategy and tap into opportunities for growth.

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