Ravi Chandran
Whether you are planning to develop new capabilities, create new products or expand your business footprint overseas, having access to the right financing is crucial to realise your growth ambitions.
For business owners searching for right financing, it is important to be mindful that with effect from 29 Oct 2019, Enterprise Singapore’s existing financing schemes will be streamlined into one umbrella scheme known as the Enterprise Financing Scheme (EFS). EFS will enable Singapore enterprises to access financing more readily throughout their various stages of growth.
It covers six areas to address enterprises’ financing needs. Enterprise Singapore will share the loan default risk in the event of enterprise insolvency with the Participating Financial Institutions.
- SME Working Capital Loan – Finance daily operational cashflow needs.
- SME Fixed Assets Loan – Finance the investment of domestic and overseas fixed assets.
- Venture Debt Loan – Finance the growth of innovative enterprises using Venture Debt and Warrants.
- Trade Loan – Finance trade needs.
- Project Loan – Finance the fulfillment of secured overseas projects.
- Mergers & Acquisitions Loan – Finance the acquisition of target enterprises with the intent of internationalisation.
A higher risk share will be considered for the following:
- Young companies within 5 years from inception; and
- Markets with Standard & Poor’s (S&P) ratings of below BBB- or are not rated.
In light of COVID-19, the food & beverage, retail and tourism establishments are required to comply with the Safe Distancing measures to be eligible for EFS.
To qualify for the EFS, you need to:
- Be a business entity that is registered and physically present in Singapore.
- Have at least 30% local equity held directly or indirectly by Singaporean(s) and/or Singapore PR(s), determined by the ultimate individual ownership.
- Have a Maximum Borrower Group revenue cap of S$500 million for all companies.
For “SME Working Capital” and “SME Fixed Assets”, SMEs refer to companies with a group revenue of S$100 million or maximum employment of 200 employees.
Right financing with SME Working Capital Loan
Table of Contents
Finance operational cashflow needs.
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MAXIMUM LOAN QUANTUM
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S$1 million / borrower
Note: Overall loan exposure limit of S$50 million per borrower group across all areas. |
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MAXIMUM REPAYMENT PERIOD
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5 years |
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RISK-SHARE
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The borrower is responsible to repay 100% of the loan amount. When defaults occur, the Participating Financial Institutions (PFIs) are obligated to follow their standard commercial recovery procedure, including the realisation of security, before they can make a claim against Enterprise Singapore for the unrecovered amount in proportion to the risk-share. |
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INTEREST RATE
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Subject to the PFIs’ assessments of risks involved. |
As announced at Solidarity Budget 2020, the Enterprise Financing Scheme – SME Working Capital Loan (EFS-WCL) is enhanced to help SMEs with their working capital needs. The maximum loan quantum was raised from $300,000 to $1 million. Risk-share was also increased to 90% (from 50% and 70% for young companies) for new applications initiated from 8 April 2020 until 31 March 2021.
Enterprises under the Enhanced EFS-WCL may apply for a deferral of principal repayment to help them reduce their monthly cash outflow, subject to assessment by the PFIs.
Mr Paul Ho, chief mortgage officer at iCompareLoan, said: “right financing is especially important for cash flow management. Most businesses suffocate and die because they do not have sufficient cashflow to keep their businesses afloat.”
The importance of cash flow is particularly pertinent at times when access to cash is difficult and expensive. A credit crunch creates extreme forms of both of these problems. When the `real economy’ slips into recession, businesses face the additional risk of customers running into financial difficulty and becoming unable to pay invoices – which, allied to a scarcity of cash from non-operational sources such as bank loans, can push a company over the edge.
Even during buoyant economic conditions, cash flow management is an important discipline.
Failure to monitor credit, assess working capital – the cash tied up in inventory and monies owed – or ensure cash is available for investment can hamper a company’s competitiveness or cause it to overtrade.
Cash flow is the life blood of all businesses and is the primary indicator of business health. It is generally acknowledged as the single most pressing concern of most small and medium-sized enterprises (SMEs), although even finance directors of the largest organisations emphasise the importance of cash, and cash flow modelling is a fundamental part of any private equity buy-out. In a credit crunch environment, where access to liquidity is restricted, cash management becomes critical to survival.
In its simplest form, cash flow is the movement of money in and out of your business. It is not profit and loss, although trading clearly has an effect on cash flow. The effect of cash flow is real, immediate and, if mismanaged, totally unforgiving. Cash needs to be monitored, protected, controlled and put to work.
There are four principles regarding cash flow management:
- Cash is not given. It is not the passive, inevitable outcome of your business endeavours. It does not arrive in your bank account willingly. Rather it has to be tracked, chased and captured. You need to control the process and there is always scope for improvement.
- Cash management is as much an integral part of your business cycle as, for example, making and shipping widgets or preparing and providing detailed consultancy services.
- Good cash flow management requires information. For example, you need immediate access to data on:
– your customers’ creditworthiness
– your customers’ current track record on payments
– outstanding receipts
– your suppliers’ payment terms
– short-term cash demands
– short-term surpluses
– investment options
– current debt capacity and maturity of facilities
– longer-term projections. - You must be masterful. Managing cash flow is a skill and only a firm grip on the cash conversion process will yield results.
