Banks form the backbone of the economy. They are the drivers of growth, and in an economy like Singapore, they are the initiators and leaders in several areas of innovation. For example, recent times have seen a boom in the fin-tech industry. As a result, a lot has been changing in the financial sector in Singapore. Getting loans has become more accessible, innovative payment solutions have devised, and more importantly, tools that increase the ability of an SME to manage its finances more efficiently are a boon to the SME sector. However, one problem that no fin-tech has been able to solve is to promise a good credit line in the long term, dedicated tools to manage customers, assets and liabilities, and a safe place to keep the money. There is a gap between what the fin-tech companies deliver and what gets needed for uninterrupted business continuity that only a bank can fulfill. Therefore, ignoring a bank is out of the question. Now, brings up the question – how to select a bank for an SME in Singapore?
Why is this an important decision for an SME?
An SME, by its nature, can land in dire need of cash or loan at any given moment. Such a situation can arise due to several reasons. For instance, change in the laws of the state, expansion plan, a sudden loss due to a disaster, or delay in customer payment can force an SME to seek a loan. In such a situation, having a reliable bank backing the company can be a lifesaver.
A bank provides many different services that a start-up can use to stay viable and profitable in the long run. A few of these notable services include:
- Current account
- Quick loan dispersal
- Low-interest rates
- Assistance with government schemes
- Employee bank accounts
- Credit cards to business and its employees
- Online and phone banking
- Specialized SME productivity tools
A bank, with its portfolio of products, can provide tailored solutions to the problems faced by SMEs. For example, Start Digital by DBS bank is a top-notch solution for SMEs looking to integrate cashless payments into their physical as well as virtual outlets.
However, banks need to ensure they understand the nature of the work and the industry standards followed by the SME.
How to find a bank that understands the business?
Many major banks in Singapore understand the need of the country. The majority of companies falling under the bracket of SME, the banks have devised schemes and products that cater to the small size of the companies, and at attractive prices. Therefore, SMEs in Singapore not merely have a chance to select a bank that provides them with a reasonable amount of freedom; also, the businesses get to choose from a wide variety of specialized financial instruments that take care of critical business components.
An SME should weight its options on the following parameters:
Services provided by the bank
A bank should be able to furnish the business with enough services for either free of cost or at a bare minimum charge. A business requires a plethora of services daily. These include credit cards, term loans, equipment leasing, online banking, wholesale lockbox, wire transfer, and real estate loans. Apart from the regular services, the business should also look for specialized products that are provided by the bank. These could be loans for buying real estate, upgrading machinery, expanding business, and undertaking sustainability projects.
The agility of the bank
Start-ups are often unable to take the plunge due to the credit-constraint faced by the SMEs. Therefore, banks must support the SMEs by making quick decisions regarding the availability of credit to the business, and in cases where the SMEs require a loan quickly to stay afloat. Most international banks give enough decision-making authority to the associate at the regional or zonal levels to facilitate quick decisions. However, several financial institutes have to run to the head office before providing considerable credit to a business.
Most banks provide various specialized services. These services may or may not require by a business. Also, since all the services are chargeable, therefore, the cost of maintaining an account with a particular bank can be higher than that with other banks.
Comfort with the local laws
Abiding by the law is the most important thing for any business to survive. An ideal bank will work seamlessly and fairly from within the legal framework. The bank will follow all the rules, and suggest the central regulator to improve the business environment. Financial institutes face fines by the Singaporean government (or other authorities) if they do not comply with the laws; this can affect your line of credit as well.
Finding a common goal
Banks have been coming up with several highly specialized products that impart them a leadership role in particular niches. For example, UOB recently won the best bank award for helping SMEs in adopting the technology. It became possible because the start-ups aligned their goal with that of the bank, and the bank fine-tuned its products to seek a common ground where all the parties benefited.
What are the other options for sourcing capital?
While it gets recommended that a business should associate itself with a bank, there can be several reasons as to why a bank may not be willing to provide a loan to a company. In such a case, here are a few options that the business can consider:
These are online communities that comprise of investors and lenders. The lenders state their requirements in terms of the capital needed, and the purpose. In return, the investors use these opportunities to invest their money into start-ups and earn money either in the form of equity or interest. These platforms have gained much popularity partially because they are easily accessible and the half because they are comparatively less stringent.
Read Also: Alternatives Source of Funding for SMEs.
Authorized Money Lenders
The Ministry of Law (MinLaw) has authorized companies and individuals in Singapore to provide personal loans to individuals and businesses at attractive rates. The eligibility criteria is relaxed in this case, and the tenure is usually limited to a maximum of 2 years. The lenders are little interested in understanding the business and purpose of the loan, which makes it a smooth and lucrative option for many start-up founders. Here is a list of 20 authorized money lenders in Singapore.
Non-Banking Financial Institutions
These are financial institutions that behave like banks but aren’t banks. These are usually smaller in size and provide a minimum loan amount. The eligibility criteria are strict, and the loan purpose is grilled to ensure that the business and its use is legit. Several financial institutions in Singapore behave like non-banking financial firms.
Sourcing finance for an SME can be challenging at times. However, with the right bank, the challenge can be overcome easily. An SME-friendly bank is quick in decision making, provides specialized solutions, and offers many services aimed at making the life of the SMEs easy.