SME loan unavailability and lack of access to credit is why businesses often fail

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New businesses fail within a short period of starting and one of the main reasons why they do so is because they do not have access to credit or SME loan. There were 43,000 start-ups here in 2016, almost double the 22,000 in 2003, and according to the Department of Statistics, half of new businesses fail within the first three years.

Limited help is available to struggling entrepreneurs and enterprises from Enterprise Singapore, a statutory board under the Ministry of Trade and Industry (MTI). It was formed on 1 April 2018 to support Singapore SMEs development, upgrade capabilities, innovate, transform, and internationalise. It also supports the growth of Singapore as a trading and startup hub, and continues to be the national standards and accreditation body.

SME Micro Loan scheme is one very popular micro loan and SME Working Capital Loan is a lesser known one.

SME loans – with low success rate, it is important to work with trusted hands

SME loan
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But besides these 2 loans there are other SME Loans and insurances that owners of small enterprises can have access to, including alternative venture debt financing for innovative, high-growth companies of up to S$5 million for their business expansion; and financing of up to $15 million to purchase equipment, machines or selected factory properties.

One SME Loan businesses can have access to via alternative venture debt financing is SME Venture Loan.

The SME Venture Loan is meant for fast-growing and innovative companies to expand their operations with venture debt financing of up to S$5 million. Introduced in October 2015, the Venture Debt Programme (VDP) serves as an additional financing option for SMEs where venture debt providers may combine loans with rights to purchase equity.

To facilitate continued access to alternative financing, the VDP will be extended for another three years from 1 April 2018 to 31 March 2021. Enterprise Singapore shares 50% of the risk of loan defaults with Participating Financial Institutions (PFIs) in the event of company insolvency. Interest rates, repayment structures, collateral and warrant structures will be determined by the PFIs.

The scope of the SME Venture Loan Scope is to provide working capital, asset financing, project financing, or for mergers & acquisitions. The loan quantum is up to $5 million and warrants will be required.

Another SME Loan small businesses can have access to for the purchase of purchasing equipment and expanding is the SME Equipment and Factory Loan. Small and medium enterprises can apply for loans of up to $15 million through the Local Enterprise Finance Scheme (LEFS) to purchase equipment, machines or selected factory properties. Enterprise Singapore shares the risk of loan defaults with Participating Financial Institutions, in the event of company insolvency.

The scope of this SME loan is aimed at automating and upgrading factory and equipment, and for the purpose of purchasing JTC Corporation or Housing & Development Board factory and business premises. Business owners can get SME loan of up to $15 million under this scheme.

The repayment period for this SME loan is up to 8 years for equipment loans, and up to 10 years for factory loans. The interest rate for successful lans is subject to participating financial institutions’ assessments of risks involved. To get this credit facility, SMEs should be registered and operating in Singapore, have at least 30% local shareholding, and have group annual sales of up to $100m or group employment size of not more than 200.

As a high number of applications for SME loans are unsuccessful, it is important for passionate business-owners to work with trusted hands, and people who know the industry. One recent research report said that up to 81 per cent of SMEs in Singapore do not qualify for business financing.

But access to SME loans to grow the business is often hindered by the lack the relevant financial knowledge and / or the resources to engage professional business consultancy services to manage and address their obligations and financial liabilities as business owners. The terrain to apply and qualify for SME loan is also uneven because creditors are not just banks but finance companies and other licensed lending entities whose security arrangements may be different or more complicated.

by: Hitesh Shah / Contributor iCompareLoan

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