If you are an SME owner, there is a high chance you would have encountered finance-related issues when running your business at some point in time. In this detailed guide, we will do an overview in order to understand the SME loan and financing landscape in Singapore and the challenges involved in business financing. Our guide will endeavor to cover all aspects of financing your business.
Businesses, especially SMEs, have grown highly competitive in the past 10 years. Local competition is not new, but international and online competition has kept small businesses on their toes. And along with the general cost of living, cost of doing business has gone up as well. In such a scenario, it is absolutely essential for SME owners to keep an eye on their cash flow.
According to a NUS Enterprise study, almost half of all start-ups fail in the initial stage because of cash flow issues in the business.
SMEs face a number of business challenges. According to DP Information Group’s SME Development Survey of 2017, the biggest challenge for SMEs is working capital. Over a third of SMEs surveyed reported finance-related issues. This was up more than 13 percentage points from the previous year and almost doubled since 2014.
What are the finance-related issues plaguing SMEs?
Based on the survey conducted between 2,522 SMEs, four main issues were highlighted by SMEs in 2017.
81% – DELAYED PAYMENTS FROM CUSTOMERS
29% – HIGHER INTEREST RATES FOR BANK LOANS
22% – SUPPLIERS TIGHTENING CREDIT ACCESS
9% – NEED MORE COLLATERAL FOR SAME FINANCING
Statistics based on SME Development Survey of 2017*
Delayed payments from customers
This is the most common issue faced by SMEs. Due to seasonal fluctuations, your clients may not be able to pay you on time. One “hot-cake” solution is invoice financing. Numerous factor houses or financier offering invoice financing have emerged over the last 3 years to service the under-serviced segment of SME by the banks in Singapore.
Higher interest rates for SME loan or business loan
SMEs also highlighted that they encountered higher interest rates when they go to the bank. 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.
Suppliers tighten credit access
As financing gets tougher for companies, suppliers start to tighten credit access to their debtors. Suppliers may require companies to pay for inventory upfront or at shorter notices.
Need more collateral for the same financing
Typically, traditional banks would require collateral for SME Loan of larger amounts. SMEs have highlighted the need for more collateral for the same financing. Example, instead of the usual fixed assets, the financier will require an Universal Life (UL) insurance to secure the key person.
Be Savvy!
Many times, business owners fail to grasp an understanding as to why their bank application did not work out the way they wanted and that their principal bank cannot assist them in times of need.
The most important things when it comes to making a decision on financing your business are to be savvy, resourceful and be open to all ideas and opinions that your Business Consultant or Finance Manager of your company has to say. With the increasing number of Financiers or Lenders in Singapore, you may often be confused left disarrayed and led to impulsive decision being made which is detrimental to your business.
Finnex Pte Ltd is the only consultancy that assist business owners to structure the most suitable financing the business requirements acting in your business best interest. We have negotiated more than tens of millions for countless SMEs in Singapore within our network of 47 Financiers.
Contact us today and one of our friendly consultants will reach out to you within 1 to 2 working days.