When it comes to securing bank loans, the number of roadblocks that businesses face is on the rise. A survey conducted by the Singapore Business federation (SBF) last year discovered that 56% of businesses are affected by increasingly expensive bank loans—a 9% increase from 2014. Out of the businesses that have managed to get loans in the past, 1 in 4 now need more collateral in order to secure the same financing1. Fortunately for small businesses, options are increasingly expanding and straying from the typical bank-funded method.
Financial Institutions are more willing to take on businesses deemed ‘risky’ if they do not have to shoulder the risk in its entirety. Try government-supported initiatives like the SME Working Capital Loan, where 50% of the loan risk is assumed by the government. SPRING also shares the loan defaults for the SME Micro Loan, where they assume even greater risks for younger startups.
Other cashflow opportunities include the SME Venture Loan and Loan Insurance Scheme (LIS).
Diversify your options
Big banks might have the most appealing offers, but if your business does not make the cut, look out for other options that might give your business the chance it needs to evolve. One of the most popular methods is crowdfunding, which has fuelled many a modern day success.
Crowdfunding, as defined by Forbes, is “the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet.”2 This infographic explains the basics of the process:
The potential benefits of this method is embodied by the most backed crowdfunding campaign—the card game Exploding Kittens.
One year later, the game has still not lost its traction, expanding onto mobile platforms and available in stores world over, including in Singapore.
What this success story demonstrates is that with the proper platform, any innovative business idea or solution can take flight through crowdfunding. Not only does it provide the capital, crowdfunding is also a good way to get feedback, from both funders and potential funders, as well as get a gauge of who your target market is, based on who responds best to your campaign.
On the local field, businesses have ample crowdfunding opportunities. The Monetary Authority of Singapore has made efforts to increase access to funding for small businesses. This involves offering securities to investors and relaxing the financial requirements for Security-based Crowd Funding (SCF) platforms to earn licenses, enabling wider range SCF platforms to operate.
With an extensive list of venture capitalist firms in Singapore, local businesses have a myriad of potential investors to choose from. Venture capitalists are private investors that provide equity or loan capital to businesses that show promise. It is important to note that a venture capital loan differs from a typical loan in that upon funding their business of choice, venture capitalists get a stake in the company, essentially becoming a partial owner of the business venture.
Although this might not be preferable for every business owner, the venture capital route has a long-standing record of success. Local startups that have benefited from this method include the highly successful Food Panda, which received $218 million since its inception in 2012 and online supermarket platform RedMart.
Despite the plethora of other options available, if your go-to method is still obtaining funding from banks and established financial institutions, things may be looking up. This year, banks have made an increased effort to cater to SMEs, offering more support for loans and crowdfunding4. Businesses can expect collateral-free business loans and equity crowdfunding opportunities to be made available in the near future.