Internationalisation Finance Scheme for medium enterprises

Internationalisation Finance Scheme (IFS) is a programme designed to assist aspiring Singapore-based companies who wish to venture abroad and are in need of financing facility. Internationalisation Finance Scheme provides indemnification to Participating Financial Institutions (PFIs) who provide the credit facility.

With Internationalisation Finance Scheme, companies have the opportunity to access financing facilities provided by PFI in the following categories:

• Asset-based financing to purchase fixed assets for use overseas, or to purchase/construct factories overseas
• Structured loans to finance the working expenses of secured overseas projects
• Banker’s guarantee for issuance of guarantee facilities for secured overseas projects which can take the form of advance payment guarantee, performance guarantee or tender bond guarantee
• Merger and Acquisition financing to finance acquisition of equity stakes in businesses for overseas expansion. The acquisition should be in line with the applicant’s core business

Interest rates, repayment structures and collateral requirements will be determined by PFIs. To be eligible for the Internationalisation Finance Scheme, the medium enterprises must have their main business functions in Singapore and annual sales revenue (including subsidiaries) of less than $500 million (for trading companies) or less than S$300 million (for non-trading companies).

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Under the Non-Recourse programme of the International Finance Scheme (IFS-NR), mid-sized companies can access up to $50 million in project financing for local and overseas development projects. Enterprise Singapore co-shares default risks with Participating Financial Institutions (PFIs) to look beyond the borrowers’ balance sheet and instead rely on project income streams when extending project finance loans.

Enterprise Singapore is 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.

To qualify for the IFS-NR companies must have their main business functions in Singapore with annual sales revenue (including subsidiaries) of less than S$500 million (for trading companies) and less than S$300m (for non-trading companies). In addition, the qualifying Singapore entity must have at least 30% equity share in the Special Purpose Vehicle and the overseas business must complement the Singapore company’s core operations and result in clear economic spin-offs to Singapore.

A Special Purpose Vehicle (SPV) is a legal entity created for a specific purpose. In the context of raising capital, a SPV (usually structured as LLC) can be used as a funding structure, by which all investors (or investors under a given investment threshold) are pooled together into a single entity.

In addition Singapore-based Marine & Offshore Engineering (M&OE) companies can receive greater funding support through the enhanced Internationalisation Finance Scheme, to tide over the slowdown in the sector. With IFS M&OE, companies have opportunities to access financing facilities provided by Participating Financial Institutions (PFIs) with maximum loan quantum of up to $70 million in the following categories:

• Asset-based financing to purchase fixed assets, or to purchase/construct factories.
• Structured loans to finance the working expenses of secured projects.
• Banker’s guarantee for issuance of guarantee facilities for secured projects which can take the form of advance payment guarantee or performance guarantee.
• Merger and Acquisition financing to finance acquisition of equity stakes in businesses for expansion. The acquisition should be in line with the applicant’s core business.

To help M&OE companies finance operations and bridge short-term cash flow gaps, Enterprise Singapore will improve access to working capital through its bridging loan. This will help them finance operations and bridge short-term cash flow gaps.

Enterprise Singapore shares the risk of loan defaults with Participating Financial Institutions in the event of company insolvency. This loan, available from December 2016, is one of two measures to provide one-off financial support for companies in the industry.

The scope of the bridging loan is to provide working capital (e.g. daily operations) and it gives a loan quantum of up to $5 million per company, or up to $15 million per group. A “borrower group” consists of the Applicant Company, the Applicant Company’s corporate shareholders who own >50% of total shareholding (all levels up) and the Applicant Company’s subsidiaries where the Applicant Company holds >50% of the total shareholding of the subsidiaries (all levels down). Loans made to any of the entities mentioned above will therefore count towards an aggregated S$15 million limit.

The repayment period for this bridging loan is for a period of up to 6 years, and the interest rate for this loan is subject to Participating Financial Institutions’ assessments of risks involved.

About 14 banks and financial institutions participate in this Internationalisation Finance Scheme.

Realistically, business owners can expect the interest rate on IFS to hover around 6 – 8.75% per annum (effective interest rate). In order to get the best interest rate, business owners need to send in an application to every financial institution and view their offer. However, most SMEs often cannot afford the luxury of time to do that, and this is where iCompareLoan’s team can come in to help business owners compare all the financial institutions’ to help you get the best deal.

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by: Hitesh Khan / Contributor, iCompareLoan