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SME Financing Singapore Guide

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Business Loan Singapore | SME Loan Singapore

A comprehensive guide to business financing for Singapore SME owners. Get an overview of SME financing landscape, business loan criteria and working capital management tips to improve cash flow. More resources on SME financing can be found at https://smeloan.sg

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SME Financing Singapore Guide

  1. 1. © Copyright Linkflow Capital, 2017 SME Business Financing Guide Ultimate Resource Guide The complete resource and guide to SME financing overview, loan products, improving cash flow & banks credit criteria.
  2. 2. © Copyright Linkflow Capital, 2017 Resource Guide Outline For Whom Directors, business owners & finance managers of SMEs operating in Singapore. c Purpose Introduction to SME financing, loan facilities, managing working capital & cash flow, documentations + key criteria in credit assessment.
  3. 3. © Copyright Linkflow Capital, 2017 SME Financing Landscape Below banks, financial institutions & alternative lenders are active participants in local SME financing space. DBS CIMB SCB Ethoz Capital Maybank UOB RHB Singapura Finance HSBC Hong Leong Finance Citibank IFS Capital OCBC Bank of East Asia Moolahsense Funding Societies Sing Investments & Finance Bibby Financial Services
  4. 4. © Copyright Linkflow Capital, 2017 Loan products Unsecured Term Loan o Unsecured funding for working capital needs, no collateral required o Turnaround time for assessment 2-3 weeks Commercial/Industrial Property Mortgage o Secured loan to finance assets acquisition o Can also pledge unencumbered property to banks for facilities o Property financing usually bears lowest rates.
  5. 5. © Copyright Linkflow Capital, 2017 Loan products 01 Factoring is short- term borrowing used to improve working capital and cash flow position w 02 Business sells its receivables invoices to a bank/FI at a ‘discount’ rate 03 Banks/FI advance 80%-90% margin of the invoices value in cash to company 04 infographicOn notification or non- notification basis Z Factoring/Receivables financing
  6. 6. © Copyright Linkflow Capital, 2017 Loan products 01 LC/TR trade lines & local invoice financing f 02 Revolving credit line finance materials & inventory from local/overseas suppliers) 03 Banks pay supplier directly while granting 90-120 days credit terms 04 infographicAble to use LC for overseas suppliers to reduce risk of international trade 4 Trade Financing
  7. 7. © Copyright Linkflow Capital, 2017 Trade Financing 01 02 03 04 Buyer Issuing Bank Seller Advising/Confirming Bank Keyword Contract Letter of Credit Application Letter of Credit Advice of Letter of Credit
  8. 8. © Copyright Linkflow Capital, 2017 Loan products Business Overdraft (OD) o Revolving credit line for short term funding requirements o Interest accrued only when utilized Machinery/Equipment/ Vehicle Loans o Financing to acquire asset o Interest rates typically lower due to security provided in favor of banks o Typically structured in form of hire purchase
  9. 9. © Copyright Linkflow Capital, 2017 SME Financial Management Managing Cash Flow Cash flow is the lifeblood of every business w A rule of thumb in managing cash flow is to delay outflow of cash as long as possible and expedite receivables from customers as fast as possible +
  10. 10. © Copyright Linkflow Capital, 2017 Concept of “Profit” versus “Cash Flow” Profit is not equal to cash flow "Profit / Loss“ are figures of how much money you have made/lost after deducting all business expenses At point of sale, may not receive payment yet "Cash flow" is the difference between cash inflows and outflows of your business transactions P&L profits might not reflect actual profitability of a business if cash flow negative
  11. 11. © Copyright Linkflow Capital, 2017 Profit vs Cash Flow Although both companies reported same profits, company A has better cash flow management as it’s able to collect higher deposit from it’s sales while having longer credit from suppliers
  12. 12. © Copyright Linkflow Capital, 2017 Improve Cash flow Forecast cash flow Create 12 months cash flow budget and forecast Improve profitability instead of revenue Look into ways to reduce your buying price and manage your operating costs Diversify procurement . Look for alternative supply sources that is cheaper. Negotiate credit terms with supplier Practise financial management discipline Raise money ahead of time, spend only where necessary & invest in assets that can generate more business and cash.
  13. 13. © Copyright Linkflow Capital, 2017 Review debtors list frequently to monitor ageing Agree payment terms in advance Establish proper credit practices & control Establish limits for each category of customer - never allow exposure to slip beyond these limits Constantly review the limits during slow economy periods or to customers in weak industries Agree up front payments or payments on completion of milestones Improve collection turnaround cycle –Try to negotiate advance payments for goods/services with credit terms Debtors Management Control Improve Cash Flow
  14. 14. © Copyright Linkflow Capital, 2017 Improve Cash Flow Inventory Management Control Carry out frequent stock takes Know the number of times each major item of your stock turns around in a year Consider selling slow moving inventory at a discount or bundle with other products. Analyze stock by product type and identify fast moving inventory / stock Review security process to ensure no stock pilferage Review production process and eliminate bottlenecks which delay delivery Increase stock turnover cycle - Procure just-in- time or carry stocks that have faster turnover
  15. 15. © Copyright Linkflow Capital, 2017 Financing Golden rule of financing Do not take short term borrowings to fund long term assets Moderate Match the maturity of the assets with the maturity of the financing. Aggressive Use short-term financing to finance permanent assets. Conservative Use permanent capital for permanent assets and temporary assets.
  16. 16. © Copyright Linkflow Capital, 2017 Financing Lower Dashed Line Would be more Aggressive Fixed Assets Perm C.A. L-T Fin: Stock, Bonds Years $ Short Term Loans Temp. C.A.
  17. 17. © Copyright Linkflow Capital, 2017 Financing Financing Options Debt Financing Equity Financing Hybrid Financing Private Equity Financing Working Capital Financing Asset-based Financing Injection of Capital Loans with Equity Conversion Rights Equity Injection with Exit Plan Factoring of Debt LC/TR Financing Unsecured Term Loan Hire Purchase for Equipment Term Loan Accelerate Business Growth Angel Investors/ SEED Financing Accelerate Business Growth
  18. 18. © Copyright Linkflow Capital, 2017 Business must illustrate that it has Good banking conduct, ensuring there is always adequate cash balances and no record of bounced cheques Good credit history, which applies to both the business and the business owners No past or current litigation that will adversely affect the business going-concern. Business Loan Application
  19. 19. © Copyright Linkflow Capital, 2017 Business Loan Application E.g. of litigation search report on companies/business
  20. 20. © Copyright Linkflow Capital, 2017 Business Loan Application Sample of individual credit report. The alphabets reflects the payment status: A:< 30 days past due B: 31-60 days due C: 61-90 days due D: > 90 days due F : Closed with outstanding balance W - Default
  21. 21. © Copyright Linkflow Capital, 2017 Business Loan Application f Provide good quality historical financial statements, preferably audited, and up-to-date management accounts Have a concise business plan that explains the business growth, loan amount required, use of funds and expected repayment means To improve business loan application approval chances:
  22. 22. © Copyright Linkflow Capital, 2017 Business Loan Application Common documents required Latest 2 years financial report Latest management accounts Last 6 months operating bank statements Latest GST returns (if GST registered) Latest debtors and creditors aging list List of major suppliers & customers details Recent contracts/projects listing Directors’ latest 2 years Notice of Assessment
  23. 23. © Copyright Linkflow Capital, 2017 Documentations Bank statements presents current view of company’s operations. Generally, banks will look out for returned cheques/Giro due to insufficient funds. Total deposit figures/month indicate if there’s drop in revenue compared to previous years revenue Average cash float maintained in statements is indicative of cash flow health. Very wide gap between highest & lowest bank balance figure might indicate cash flow volatility Improve Cash Flow
  24. 24. © Copyright Linkflow Capital, 2017 Business Loan Application Documentation 02 03 01 Most banks will screen financial statements key ratios to determine credit worthiness Most banks generally do not finance to loss making or negative net worth companies Financial statements are most important document for credit assessment
  25. 25. © Copyright Linkflow Capital, 2017 Business Loan Application Common ratios in financial statements analysis Current ratio A liquidity ratio that measures a company's ability to pay short-term obligations Current assets / Current liabilities i.e. = $2,680 / $1,145 = 2.34x
  26. 26. © Copyright Linkflow Capital, 2017 Business Loan Application Receivables turnover days An accounting measure to quantify effectiveness in extending credit & collecting debts. Receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets Receivables Turnover Ratio Net receivable sales/ Average net receivables Average Creditor payment period Trade Payables/Credit Purchases x 365 = Average Payment period in days Average Debtor collection period Trade Receivables/Credit Sales x 365 = Average collection period in days Average Collection Period 365 / Receivables Turnover Ratio
  27. 27. © Copyright Linkflow Capital, 2017 Business Loan Application Gearing ratio Compares some form of owner's equity (or capital) to borrowed funds. Gearing is a measure of financial leverage, demonstrating the degree to which a firm's activities are funded by owner's funds versus creditor's funds. Gearing Ratio = Long Term Debt/ Share Holder Equity Common ratios in financial statements analysis
  28. 28. © Copyright Linkflow Capital, 2017 Business owner do not want to pledge personal guarantee. No bank will lend without PG from director, especially so for unsecured lending. Providing PG indicates directors are confident of repayment and is a form of assurance. Not willing to increase paid up capital. It is tough for banks to lend to company with $1 capital. Directors need to have some ‘skin in the game’ before banks are willing to lend as it indicates directors are vested in company as well. Business Loan Application Common misconceptions about financing
  29. 29. © Copyright Linkflow Capital, 2017 Banks should lend to those who need funding. Banks are not non-profit organizations, need to answer to shareholders and board. They can only finance borrowers who can display the ability and means to repay. Documentations are a hassle. Some companies reluctant provide full info & documents required by banks. Banks require standard documents to process applications and no banks will be able to provide assessment without. Business Loan Application Common misconceptions about financing
  30. 30. Compare all banks business loans Free online loan assessment tool See My Loan Options Instantly! Summary We hope you’ll find this guide a useful resource for SME financing and cash flow management.
  31. 31. © Copyright Linkflow Capital, 2017

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