COVID-19 has been an unforgiving teacher imparting many tough lessons for businesses – whether you like it or not. Chief among them is the importance of cash flow and liquidity to tide through unforeseen situations that may persist for some time.
Profitability is important in the long-term, but if one cannot fulfil monthly operational obligations, such as paying rent, salaries, and suppliers, then everything else would be for nothing. Even a profitable company that does not have the cash flow for these payments would have become insolvent.
Obviously, there are also downsides to keeping a large cash buffer for a rainy day. The more cash businesses set aside, the less they are able to invest in their growth and the lower their return on equity (ROE) will be for shareholders and investors.
Here’s where financing options like SME Working Capital Loans come in to provide companies with the flexibility they need, when they need it.
What Is SME Working Capital Loan – And What Are Your Options To Get It?
In the course of running your business, there are costs that you will incur on a regular basis. Rent, salaries, and loan repayments are recurring cost you incur. There are also variable or ad-hoc costs that you incur to generate revenue, such as deposits, marketing, paying suppliers for materials, or spending on sales.
You can pay for these expenses in various ways.
Retained Profits: As mentioned earlier, companies can keep a cash buffer from profits generated previously, rather than paying everything out to shareholders as dividends. This can be challenging for companies that might not yet be profitable or are new.
Fundraising: Undertaking a fundraising exercise might be necessary to fund large-scale expansion plans, but it can be time-consuming and costly. Not to mention, owners would likely be giving up more control of the company if you are sourcing external fundraising.
Financial Options: Taking a loan provides companies with the flexibility of financing whenever they need it – at a cost (interest). Also, it is imperative companies understand the repayment terms and ensure they are able to meet them.
About The Government-Assisted SME Working Capital Loan (Enhanced In Budget 2020)
In order to give companies greater access to financing options to keep their operations afloat and to seize new opportunities in the market, the government announced enhancements to the SME Working Capital Loan.
Eligible companies can now borrow between $10,000 to $1 million, repaid over 5 years, with no early repayment fee. Interest rates range between 1% to 5%. The loan is collateral-free, and can be applied for (and approved) online within minutes (using your SingPass/CorpPass).
You can use the SME Working Capital Loan for a range of business needs, from paying your staff, buying equipment, investing in software, or doing marketing. This is unlike other more specific, more restrictive loans.
The government-assisted SME Working Capital Loan is disbursed by 14 participating banks and financial institutions, including OCBC, DBS, UOB and more. As a government-assisted loan, the government takes on 90% of the risk-share, which allows the interest costs to be kept low.
Update: Announced on 12 October 2020, MAS will be extending the SME Working Capital Loan to 30 September 2021, from its original end date of 31 March 2021.
Eligibility Criteria For SME Working Capital Loan
The eligibility criteria for the SME Working Capital Loan is same across all the participating financial institutions. It is part of the larger suite of solutions under the Enterprise Financing Scheme (EFS).
To qualify, your company needs to:
1) Be incorporated in Singapore for at least 2 years
2) Have at least 30% Singaporean/PR shareholding
3) Having group annual sales of not more than $100 million, or group employment size of not more than 200*
* Computation on a group basis means all levels up for corporate shareholders owning more than 50% of the applicant company, as well as any subsequent corporate parents and subsidiaries all levels down.
Companies can approach different participating financial institutions to borrow varying amounts under the SME Working Capital loan, but the total amount must not exceed the $1 million limit. Interest rates and approval is dependent on the respective financial institutions.
How To Apply For The SME Working Capital Loan
To apply for the SME Working Capital loan, you can approach your participating financial institution of choice. Each would have their respective application procedures.
For example, if you wish to use OCBC for their SME Working Capital Loan – or other schemes under the Enterprise Financing Scheme – you can visit their website and apply online using your SingPass/CorpPass, and receive approval in minutes. There is no need to physically visit a branch.
There are also interactive calculators you can use to get a sense of your monthly repayment, based on your selected loan tenure. You can also review other business loan options you have on the individuals banks’ websites – including the Temporary Bridging Loan (TBL), SME Overseas Loan, Equipment and Machinery Financing, and many others.
Need Financing Support During This Period?
From now till 31 March 2021, SMEs can enjoy extra financing support of up to $5 million through the Temporary Bridging Loan Programme.
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