Options aplenty for SME financing in SingaporeBy Roger Crook
Singapore remains a key financial centre of the world, where nearly 99%1 of the 216,900 business in Singapore are small and medium enterprises (SMEs). They contribute to nearly half of Singapore’s GDP and employ 70% of the workforce locally. Popular Singapore stories include OSIM, Charles and Keith, BreadTalk, ToastBox, and Thai Express.
Although local enterprises are mostly optimistic and upbeat about the present health of the economy, there are still several concerns that local business owners continue to struggle with. Several surveys2 and studies over time have indicated that slow payments, rising costs, currency fluctuations, and the lack of skilled staff are amongst top concerns of SMEs.
Despite supportive infrastructure provided by the regulator, it is not an easy road for homegrown business owners to survive. Data from the Ministry of Trade and Industry show that the percentage of companies shutting down has increased in recent times. For example, SPRING Singapore3 had reported that an average of 6 out of 10 small food and beverage (F&B) businesses make it past the five-year mark.
Last year, the results from the SME Development Survey4 stated that local business owners are struggling to cope with the availability of financing and the cost of funds. The lack of financing options has left smaller enterprises cash-strapped struggling to sustain operations, let alone scale.
Although business loans have grown this year5, there is still a prevalent gap in the market for financing. Banks have suppressed lending following the stigma from the massive losses incurred during the recession. Lending to small firms also proves unprofitable, when evaluated against the risk, regulatory pressure and costs incurred to service such loans.
Last year, ANZ bank removed SME lending from their books, to focus on areas where growth is faster and returns are particularly attractive.6
There’s no doubt that the regulator is putting its best foot forward to inject optimism into the economy and to ensure the sustainability of local small and mid-sized companies. It’s worth appreciating the Government’s efforts in supporting Singapore’s enterprises to innovate and internationalise.
IE Singapore (International Enterprise) which has offices in over 35 cities, has helped more than 24,000 enterprises with overseas expansion. Similarly, SPRING Singapore helped SMEs build in the areas of training & re-skilling, grants and subsidies, and research & development.
With limited access to traditional financing, SMEs today are turning towards credible, alternative financing options. Alternative finance includes crowdfunding, peer-to-peer financing, ICOs and invoice financing. SMEs can bypass banks and obtain financing within a faster timeframe and less paperwork.
Crowdfunding of SME invoices has emerged as an attractive option preferred by SMEs. Invoice financing platforms such as Capital Springboard, have emerged as popular financing method allowing smaller firms to sell their invoices, at a discount, to receive immediate funding. This eases the burden of companies with poor cash-flow. Adequate financing helps these companies sustain their daily operation and, gradually helps them to scale.
This concept has proved to be very successful in other countries as well. Take for example, MarketInvoice in the UK, FundX in Australia, Qupital in Hong Kong, and KredX in India. Such platforms leverage technology to cater to SME needs efficiently.
Algorithms can take care of diversifying investors portfolio and support the SME onboarding process, grading and then source financing for it. The platform conducts stringent credit checks on the SME companies and the debtors of the invoice.
After which, each invoice is evaluated very thoroughly and graded based on their credit-worthiness. There are stringent background checks which go into this process. Invoice financing platforms can service SMEs with greater efficiency and improved customer satisfaction resulting from the speed at which applications are assessed and financing is granted.
Based on our observation and feedback from SME’s, peer-to-peer financing has emerged as a popular, convenient and cost-effective method of obtaining finance. The ease at which financing has become available has made it possible to resuscitate the collapse of young entrepreneurs and their promising start-ups.
1 SMB World Asia, Slow payments a key concern for Singapore’s SMEs, September 27, 2017.
2 SMB World Asia, Slow payments a key concern for Singapore’s SMEs, September 27, 2017.
3 SPRING Singapore, Only 6 in 10 F&B businesses last beyond 5 years: study, July 28, 2015.
4 DP Information, More than 8 in 10 SMEs struggle to upgrade staff skills, November 02, 2017.
5 Singapore Business Review, Domestic bank loans up 5.1% to $634.4b in August, October 02, 2017
6 Channel NewsAsia, ANZ exits SME business in five Asian countries, cuts around 100 jobs, March 10, 2016.