5 Reasons SMEs Should Consider A Temporary Bridging Loan In 2022, Even If You Don’t Need The Money

During the Singapore Budget 2022 statement, Minister for Finance Lawrence Wong extended the Temporary Bridging Loan (TBL) programme by another six months, to 30 September 2022. He cited the immediate cash flow concerns of businesses as prices spike on the back of rising inflation for this measure.

What Is The Temporary Bridging Loan Programme (TBLP)?

The Temporary Bridging Loan is a government-assisted loan programme introduced in March 2020 to help businesses tide through COVID-19 uncertainties. This move provided companies with assurance and certainty that they will be able to gain access to low-cost working capital to ease their cash flow challenges.

Following the latest extension to the Temporary Bridging Loan, eligible companies can borrow up to $1 million, with a maximum repayment period of 5 years. The interest rate for the Temporary Bridging Loan is also capped at 5.5% – which means it can be lower but not higher.

To keep the interest rates down and encourage banks to provide Temporary Bridging Loans, the Singapore government participates in a 70% risk-share of the loans. For companies, this doesn’t change much as you are still responsible to repay 100% of the loan amount and interest payments. The risk-share only kicks in when companies are not able to make full repayment – i.e. when a default occurs.

Temporary Bridging Loan ProgrammeUntil 31st March 2022Until 30 September 2022 (Extended during Budget 2022)
Maximum Loan (revised)$3 million$1 million
Maximum Loan Tenure5 years5 years
Government Risk Share70%70%
Interest Rate Cap (revised)5%5.5%

How Quickly Can A Company Get The Temporary Bridging Loan?

Companies can receive instant status approval when you apply for the Temporary Bridging Loan. By using your Singpass or Corppass, you can apply online and with minimal documentation required, and you don’t have to wait to receive your approval.

Here are 5 reasons why Singapore companies should take up a Temporary Bridging Loan, even if you do not need it for current cash flow constraints.

Read Also: [2021 Edition] Complete Guide To SME Business Loans In Singapore

Getting a Temporary bridging Loan is not just about the money.

#1 Grow Your Creditworthiness

The title of this article makes it clear that even businesses that do not have cash flow problems should consider taking up a Temporary Bridging Loan. One of the main reasons for this is to build your creditworthiness with financial institutions, especially if you are an SME that has never taken a bank loan. This works because the Temporary Bridging Loan Programme is available to all business sectors.

Even if your business is generating stable cash flow currently, banks may not have full information about whether you are a good borrower. If you end up requiring a bank loan in the future, banks may treat you similarly to a poorer quality borrower. This will mean they won’t lend you as much as you need or may slap a higher interest rate at that point.

Taking up a Temporary Bridging Loan now and making timely repayments prove to the banks that you are a creditworthy borrower – deserving of better terms and lower rates. If you happen to need cash again in the future, the banks will now have this information to give you better repayment terms.

#2 Appreciate The Process Of Taking A Bank Loan

Many new entrepreneurs may never have taken a bank loan. Generally speaking, the worst time to do something for the first time is when you are desperately relying on it to succeed. By getting more familiar with the process today, you can speed up your application when you really need a bank loan in the future.

Also, you don’t want to wait till you desperately need a bank loan to continue operations, only to find out that you are ineligible for the full amount you want or will be hit with a high interest rate you weren’t expecting.

#3 Temporary Bridging Loan Is Very Low-Cost 

There is a 5.5% cap on the interest rate charged on a Temporary Bridging Loan in 2022. Eligible businesses, especially those with a proven track record of making timely repayments may be offered even lower interest rates. 

For those who may not know, this is a relatively low interest rate for businesses to enjoy a loan of up to $1 million without any collateral required. The reason for this is that the government is risk-sharing in 70% of the loan. This means that the bank is guaranteed that they will only lose as much as 30% of the amount you borrowed if you default on the entire amount.

Under normal circumstances, there won’t be any government risk-share. This will likely translate into higher interest charges. In other words, this is a good opportunity for cheap financing.

#4 Take Advantage Of Business Opportunity

Having cash in hand allows you to tap on business opportunities you may otherwise have passed. This could mean investing in people, equipment or software to push your business forward.

If you’re already in a healthy financial position, this could also be the impetus to push growth plans. With the extra firepower, you could open new locations, penetrate new countries, and even explore complementary upstream/downstream expansion.

With cheap financing, you could also leverage on business opportunities such as taking on good projects but with longer revenue payment timelines or buying bigger quantities of inventory at more favourable rates.

The upfront costs of these plans are usually heavy, and the Temporary Bridging Loan can cover this while your business grows.

Read Also: Guide To Buying A Commercial Property For Your Business In Singapore

#5 Scheme Is Ending Soon

Finally, this scheme will not be around forever. This is a limited-time scheme, rolled out by the government in these extraordinary times for businesses – to combat COVID-19 constraints.

For now, the Temporary Bridging Loan has been extended to 30 September 2022, and eligible businesses can borrow up to $1 million. This is already reduced from when the Temporary Bridging Loan programme was first launched, providing loans of up to $5 million. The current government risk-share level of 70% is also lower than the 90% risk-share it offered at the start of the programme, and this has increased the interest rate cap to 5.5% in 2022.

A strong economic showing in 2021 and the fact that most COVID-19 safe management measures were lifted by 26 April 2022 will likely result in the cessation after September 2022.

Note That Temporary Bridging Loan Programme (TBL) Requires 100% Personal Guarantee

There are 18 financial institutions you can apply for a Temporary Bridging Loan with. When you apply for a TBL, certain banks like OCBC will also provide exclusive perks such as a 50% discount on your facility fee (up to $500) when you complete your applications by 31 August 2022.

Your business also needs to be eligible for the Temporary Bridging Loan in the first place. The criteria includes:

  • At least 30% of shares held by Singaporeans or PRs. An entity can be a Sole Proprietorship, Partnership, Limited Liability Partnership or Company.
  • Registered and physically present in Singapore for at least 6 months

At the same time, entrepreneurs should also be aware that you may be required to provide 100% personal guarantee on the Temporary Bridging Loan that you apply for your business. According to Enterprise Singapore (ESG), this acts as “not only a means of security but signals a commitment by the guarantor(s) that they are committed to the loan obligation”.

If your business defaults on the loan, the bank will commence their standard commercial recovery procedure, before claiming from Enterprise Singapore (ESG) for any unrecovered amounts.

Read Also: Using The Government-Assisted SME Working Capital Loan To Grow Your Business

This article was first published on 7 July 2021 and has been updated with additional information.

Need Financing Support During This Period?

Enjoy fast access to funds and receive your loan approval status instantly when you apply online with OCBC.

For SMEs that are just six months into operations, secure up to S$100,000 with the OCBC Business First Loan . If your SME is above two years old, secure up to S$500,000 with the OCBC Working Capital Loan , a government-assisted loan that’s good for funding business operations or expansion. Terms and conditions apply.

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