SME Financing Made Easy: A Guide for Businesses in Singapore

At some point, most SMEs develop financing needs. Pursuing growth opportunities, relocation initiatives, or digital transformation, all call for funds. In recent years, financing options for SMEs in Singapore have grown exponentially and SME owners now have many financing instruments at their disposal. But even though the landscape is rich in financing options, the accessibility gap for SMEs is still considerable. Learn about different SME financing options in Singapore.

Overview: SME Financing in Singapore

Small to medium enterprises in Singapore contribute to 65% of employment and 49% of GDP. They are the backbone of the country’s economy, yet 72% of SMEs need funds to address cash flow issues.

Overcoming cash flow problems and managing working capital aren’t the only reasons why SMEs need financing. Various growth initiatives to better serve customers and innovate also call for funds.

So what are the financing options for SMEs in Singapore? Let’s find out.

SME Financing Options

In Singapore, SMEs have various financing instruments they can choose from to support their business’ cash flow problems, expansion operations, or the purchase of new technology.

Below are the most common financing options for SMEs.

• Unsecured business loans /Working capital loans
• Equipment loans
• Government financing schemes
• Commercial and industrial property loans
• Trade financing
• Bridging loans
• Asset-backed financing
• Leveraged buyouts

Financing Options for SMEs Compared

Let’s start with the traditional approach—bank loans.

Bank In-House Loans

Banks are established financing entities with defined and regulated credit functions. SMEs can apply for a variety of financing options at banks in Singapore. SME business loans from banks are often the cheapest, with low-interest rates.

Bank loans account for the majority of financing choices in Singapore, with financial institutions following close behind.

Note: Banks often require considerable collateral, which not all SMEs can provide. Credit assessment is lengthy and tedious due to perceived high risk in SME lending. There are also higher interest rates when SMEs can’t provide sufficient credit information.

Government SME Loans

As an SME owner, you can also apply for government loans. The Singapore Government has loan schemes available to SMEs of different sizes and growth stages. In addition to a variety of financial schemes available to SMEs, the government has also launched initiatives designed to support SMEs in the fluctuating business environment caused by the pandemic.

Singapore SMEs can get financing support through:

• One-year temporary bridging loans
• Enterprise financing schemes
  • Trade loan
  • SME working capital loan
• Loan insurance schemes

Pro Tip: Prompt repayment history will help to improve your credit history, making you more likely to receive a bank loan in the future.

The downside of many government-assisted loans is that the approval process is lengthy and might not be the best option for SMEs in need of quick cash.

Non-Bank Financial Institutions

Various non-bank financial institutions in Singapore offer financing options to SMEs. They are different from banks in that they don’t have a full bank license.

The portfolio of available products at FIs is considerable; however, financial institutions tend to specialize in specific types of lending products, e.g., equipment loans, factoring or asset-backed loans

Pro Tip: Loans at non-bank financial institutions often have higher interest rates compared to banks’ offers. However, for SMEs with a short history, small scale, and unproven business models, financial institutions can be a good solution to cash flow problems.

Peer-2-Peer Crowdfunding

As one of the newer forms of financing in Singapore, P2P crowdfunding is emerging as a viable option for SMEs. In P2P lending, investors, which are lenders, choose the borrowers they are willing to loan money to on a P2P crowdfunding platform that connects lenders to borrowers.

The benefit of choosing crowdfunding lending is that these types of loans are easier to apply and can help SMEs with cash flow issues through a quick release of funds, with no collateral required. However, the loan quantum is usually smallish and interest rates ranges from 2% to 5% per month.

As an SME owner, you can also apply for government loans. The Singapore Government has loan schemes available to SMEs of different sizes and growth stages. In addition to a variety of financial schemes available to SMEs, the government has also launched initiatives designed to support SMEs in the fluctuating business environment caused by the pandemic.

SME Financing Interest Rates Annual Interest rates are different across financial institutions and can vary between 2.5% and 12% EIR depending on the financing scheme.

The interest rate is calculated using a number of variables, including:

• Credit profile
• Collateral quality
• Loan quantum

The most popular type of loan in Singapore—unsecured business loans—has annual interest rates ranging from 8% to 12% EIR.

SME Financing Eligibility

There’s a basic set of credit criteria that SMEs should meet to be eligible for a bank loan application.

• Annual revenue. You need to have a documented annual revenue of at least $200k. Your annual revenue will also influence your eligible quantum of loan.
• Years of business establishment. To be eligible for a bank loan, your SME should have at least two or three years of business activity.
• Industry. Depending on the bank, SMEs operating in specific industries by default don’t qualify for a bank loan due to considerable credit exposure. It’s worth checking in multiple banks as banks don’t treat this matter equally.

Pro Tip: If you’re a startup or looking to buy over another company, look for alternative financing options such as equity financing, venture capitalists, funds. Banks in Singapore are reluctant to approve loans for startups due to their high risk appetite. Equity financing or leverage buyouts are usually unavailable for SMEs, as it falls under the larger corporates financing segments of banks and Financial institutions.

Pro Tip 2: At non-bank financial institutions, credit eligibility is less stringent compared to banks.

SME Financing Documents Required

Depending on the entity from which you’ll be loaning, a different set of documents and information is required to apply.

Required documents for a loan application :

• Bank statements
• Financial reports
• Other loan facilities information
• IC and Notice of Assessment

Optional supporting documents:

• Brief company description
• GST Form F5 (if applicable)
• Credit Bureau Singapore Report (CBS) - Only applicable to Non-Bank Financial Institutions
• Money Lender Credit Report (MLCB)
• AP/AR Aging List
• Sample Invoices

Pro Tip: It’s useful to include all information that can potentially expedite the approval process.

Finding the Right Financing Option

With so many options to choose from, it might be difficult for SME owners to effectively navigate the financing landscape of Singapore.

The financial acumen necessary to pick and then apply for a suitable financing option often exceeds that of SME owners and their employees.

Centralized marketplaces integrating various financing options in one place can help SMEs narrow down the choice. By connecting SMEs with only matching financing solutions, such platforms improve accessibility to financing instruments necessary to pursue growth initiatives and maintain seamless cash flow.

Financing marketplaces also support the loan application process, making it easier for SMEs to apply for a loan.

Increasing Your Chances of Getting Loan Approval

Look for financing solutions at various financial institutions. Credit criteria vary across lenders as do interest rates and loan terms. Be sure to check many financing solutions to choose the best option for your business.

Prepare your loan applications meticulously. Don’t rush this process as mistakes can decrease your approval chance. You only have one chance of application with each lender as they will have records of your history and documents.

Ensure your personal credit is settled prior to applying for a loan. Failing to repay your open personal facilities can negatively impact your application.

Know Your SME Financing Options to Choose Well

Whether it’s to mitigate cash flow issues or pursue expansion initiatives, having adequate funds is critical in the life of SMEs. That’s why it’s important to know your financing options and the conditions tied to these options to be able to choose wisely.

If you’re looking for a centralized solution with multiple lender offers, consider using Bluecell. Bluecell aggregates financing options that match your company’s capabilities. The platform helps you apply for a loan easily, shaving off the time necessary to prepare a traditional loan application.