Central Platform for SME Loan – A Step Forward

Central Platform for SME Loan – A Step Forward

2100 1167 Shikha Sarkar

The uptick in SMEs’ access to financing is getting better as per global data surveys of 2019. However, the commerce and construction sectors make up the prime share of SME loans, and both sectors are at threat if the economic state of affairs continues to depreciate further in the year 2020.

Going back to 2019, SME finance accessibility survey and research, 39 percent of SMEs in 2019 were eligible for business financing, matched to 34 percent in 2018, and 19 percent in 2017. Despite the suspicions in 2019, Singapore’s financial institutions had underwritten more than S $ 502.67 billion of loans to businesses. It showcased a 4.42 percent boost over the year 2018, vs. 5 percent growth right from 2017-2018. SME loans made up around 11 percent of local loans for the domestic banking system in June 2019.

Remarkably, the SME NPL ratio enhanced to 4.2 percent in the first half of 2019 after a spike in 2017 correlated to the oil and gas sector. Financial analysts forecast the NPL ratio will spike up further in 2020 as Covid-19 damages the world-wide economy.

The US-China trade war affected Singapore’s economy in 2019 as world-wide trade slowed down. The definitive source of significant anxiety in 2020 would be the blow of Covid-19. Economists have pictured substantial job losses, and business closures in 2020 as bankruptcies increased to a record high in Q1 2020.
These scenarios have resulted in a massive spike in SME financing requests as banks get filled with a rush in loan applications.

Best Time for SME Financing

The best time to pertain for SME financing is to verify that you don’t necessitate it. The awful time to seek funding is when you require it the most. Many SME businesses will only initiate sourcing for funding when they have a cash flow crisis. However, many of these fund applications will undesirably be turned down by banks. Banks are in the business of handling risk and will not randomly provide SME financing to organizations with no apparent repayment capability display.

Source: Visa (smeloan.sg)

SME Sources of Funding and Business Loans

Organizations based in Singapore can take up business loans from financial institutions and banks. Loan amounts can scope from $100,000 to $1 million.

For banks, business owners can choose from a range of loan products such as –

  • Business Loan
  • SME Working Capital Loan
  • Commercial Property Loan
  • Temporary Bridging Loan
  • Equipment Financing

Also Read: https://smequest.com/how-do-smes-manage-cash-flow-with-delays-in-the-customer-payment-cycle/

The business owners in Singapore can apply for SME loans digitally right from banks or financial institutions. The digital application procedure is swift, and you can get loan approval in a quick time but securing loans for SMEs is long and strenuous process. More than 40% of the SMEs Loans get rejected due to perceived risk and high default rate. Therefore banks and financial institution rely on organization’s overall credit assessment and the financial documents submitted to them. For applying for a business loan, one must meet the set criteria by the bank or institutions.  This scenario characteristically needs –

  • A registered business and a set-up in Singapore
  • At least 30 percent owned domestically
  • Business to be incorporated as a company for a minimal one or two years.
  • Sound financials, healthy cash flow, yearly revenue growth

The common factors why SMEs are unable avail the financing are due:

  • 35% of SMEs have depleted bank balance or low revenue
  • 30% of SMEs which are newly incorporated with negligible revenue.
  • 14% with loss making business and lower financial performance
  • 12% of SMEs lack 30% of the local shareholding which is a mandatory requirement for banks
  • 9% other adverse credit scenario

Currently, SME’s are facing critical challenges dealing with cash flow, access to traditional external financial sources, collecting invoices, and delayed payments. With the banks prioritizing reachability and footprint, there is no much focus on creating innovative financial solutions and products that meet SMEs’ non-financial needs. As a result, SMEs have to explore alternative mediums for funding.

Other Sources of Funding – Business Owners can Use in Singapore include:

  • Government schemes and grants 
  • Angel investors 
  • Peer-to-peer lending 
  • Venture capital
  • Bootstrapping
  • Crowdfunding

Need for a Central Platform for SME Loans 

A Central and Highly Essential Platform for SME Loans – Coming Soon!

A highly needed financial platform will be introduced, cutting paperwork, saving efforts, and time for SME loans involving just one application. PwC is in the process of implementing this platform and is swiftly getting lenders on board and will launch it out by early next year.

There will be a single platform across Singapore where all 270,000 SMEs can get a loan quote from numerous banks by filling just one application.

This scenario will save the time taken to secure a loan from a typical seven weeks down to just two, with SMEs across the country.

A step further, SMEs will be able to monitor and track their status digitally without having to speculate if their request has been approved, vanished, or negated. That could be possible as soon as early in the subsequent year if consultancy PwC has its plan and approach implemented.

Irene Liu, Partner, Risk & Regulatory, PwC South East Asia Consulting, said that the concept of an aggregate SME lending platform was in reply to the Covid-19 pandemic consequences earlier in the year.

More than ever, while the “circuit-breaker” period, some SMEs were having challenges to get involved with banks to secure loans, while banks thrashed with the overflow of loan requests, she said in a discussion. This scenario led to an extension of waiting periods, at the point when SMEs right away required quick cash flow solutions.

Ms. Liu further proposed a central SME platform to solve all these problems by enabling transparency, effortlessness, and speediness into the procedure. The dynamic team connected with government agencies, including financial institutions, SMEs, and Enterprise Singapore.


How this Central Platform will work to Combat Challenges 

Easing the Process: In the initial period, SMEs will indicate to the banks that they would like to apply for a loan. When they register and log into this platform through CorpPass and MyInfo, their details can be quickly and safely fetched for the specific loan application. This scenario minimizes the overall paperwork and saves valuable time and effort for the SMEs on different fronts. Even though there will be a single process and application, they can apply to more banks.

Platform Support: The other benefits are that for a government-backed loan with set criteria, the platform can make the eligibility review on behalf of the involved banks. It will also let SMEs know which factors they do not need to execute and what other credit services are obtainable.

Reduced Administrative Task: The platform further reduces banks’ administrative tasks by facilitating a preliminary credit risk assessment, which banks can incorporate into their active risk management models. Once the application is being initiated, banks need to reply with a tentative offer within five days.

Comparative Study: The platform will provide SMEs with a combined view of all the banks’ replies and their rates and terms, enabling companies to evaluate them efficiently.

Connecting with ecosystem: The other functionality of the platform covers the option to connect to other parts of the ecosystem like fintech companies, like to carry out credit modeling, enabling e-KYC, or allowing electronic signing to make sure that the complete loan administration is digital as well as paperless.

Details from the platform like the loan approval rate could be given to the government and banks for real-time tracking and do the right analysis on how they can back SMEs further.

– Irene Liu, Partner, Risk & Regulatory, PwC South East Asia Consulting

Functioning of Platform

The upcoming platform’s design is through PwC; however, it should be enabled by an independent 3rd party provider that will invest in the opening infrastructure costs, as per Ms. Liu.

The plan is for banks to pay a monthly fee to the platform provider while they will charge SMEs per application. Banks that are optimistic about this platform want to enlarge their SME customers and digitize their complete lending procedure.

Using this platform, the banks can do as cost-effectively as they do not require investing in the platform infrastructure and can easily plug and play. Of course, this platform will create win-win situation for both banks and SMEs, not just the SMEs benefit and the banks are at a loss.

Moving Forward with the Innovative Platform

Even though the platform uses government-backed SME loans as a significant product, there could be other categories of loans in the coming time. Even as some banks stay vigilant on their joining. 

Once 2 or 3 sign up will view the advantages, others would not want to drop the opportunity,” he added. “With more transformations, there will be an inclining point.”

Sam Kok Weng, Financial Services Leader at PwC Singapore,

Even as the forthcoming Singapore digital banks are likely to target under-served SMEs, he thinks that there will be an opportunity for the platform to be beneficial for companies. After all, the digital banks will require about a year to be operationally prepared after being granted the license.

PwC is now getting lenders onboard this innovative platform and is hoping to implement the same by early next year. The team is even walking around, having this platform work for other regions.

Shikha Sarkar

Shikha Sarkar, Director of Kit Kat Events & Marketing has more than 16 years of experience in international sales and marketing, and strong entrepreneurial skills, in-depth understanding of business, markets and customer needs. As the Ambassador of InterNations, a global expat network, Shikha supports a community of over 65,000 expats from 200 different countries living in Singapore. She loves adventure travel and wildlife photography.

All stories by:Shikha Sarkar
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Shikha Sarkar

Shikha Sarkar, Director of Kit Kat Events & Marketing has more than 16 years of experience in international sales and marketing, and strong entrepreneurial skills, in-depth understanding of business, markets and customer needs. As the Ambassador of InterNations, a global expat network, Shikha supports a community of over 65,000 expats from 200 different countries living in Singapore. She loves adventure travel and wildlife photography.

All stories by:Shikha Sarkar

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