Singapore Expands SME Financing Options to Support Small Businesses

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SINGAPORE – More channels for small and medium enterprise (SME) financing are opening up in Singapore, as banks introduce new grant programs and the government steps up effort to support small businesses.

Last week, American Express launched its Merchant Sweepstakes Programme, a five-month campaign that will award S$5,000 business grants to two SMEs each month until December this year.

The ten winning business will also receive a one-year complimentary Affiliate membership to the Association of Small & Medium Enterprises (ASME), which gives them access to ASME courses, workshops and exclusive events.

April this year, OCBC launched its Business First Loan, which provides startups as young as 6 months old with up to S$100,000, all collateral-free. The application can be approved within one day and only requires businesses to submit a one-page form, their latest Notice of Assessment and bank statement. OCBC is Singapore’s leading SME bank – more than 40 percent of SMEs are its customers, and more than one in two new businesses formed every year choose the bank.

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“Startups will find this immediately attractive, given their lack of collateral and the speed at which the entire loan can be disbursed upfront, as fundraising typically takes twice the time they envision,” said Gwendolyn Tan, head of business development for APAC at tech news website Tech in Asia.

According to findings from the ASEAN SME Policy Index 2014 report, such low/no collateral-based loans should be encouraged as SMEs often have limited assets to be used as collateral required by most commercial banks.

The report also found that access to financing will significantly impact the SMEs’ innovation capability and participation in the export market, crucial to the development of the region, especially when the ASEAN Economic Community comes into being in 2015.

“The success of [ASEAN’s] regional integration needs to have vibrant and competitive SMEs to fully benefit from a deeper regional integration and narrow development gaps,” the report said.

From 2010 to 2015, McKinsey estimates that revenue from SME banking in the region will grow by some US$149 billion, at a compound annual growth rate of about 20 percent. However, despite government measures around the region to support SME bankability, usually by providing public credit guarantees, some 44 to 67 percent of SMEs still remain unserved or underserved by banks.

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In Singapore, the Standards, Productivity and Innovation Board (SPRING), the government’s enterprise development agency, coordinates several SME financing schemes. The MLP offers loans to local SMEs with 10 or less employees or annual sales less than S$1 million, with the government taking on 70 percent of the risk. Companies up to 3 years old are eligible and a minimum of 5.5 percent interest rate over four years is required. Larger SMEs may also borrow up to S$15 million to purchase assets and equipment, under SPRING’s Local Enterprise Finance Scheme (LEFS).

The importance of SMEs to the economic development of ASEAN cannot be underestimated. In Asia, according to the Asian Development Bank, SMEs account for 98 percent of all businesses and 64 percent of employment, but contribute only 38 percent of Gross Domestic Product (GDP), indicating the potential for economic growth by boosting SME development.

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