Looking at why and how Singaporean SMEs are helping themselves by making use of the benefits of business loans to enhance, grow, and even to save, in hard times, their businesses.

I would like you to think way back to the mid to late 70s and picture those times in your mind (that’s if you’re old enough to have memories of that period). Think real hard.

Yes, back to 1977. Tennis stars like Bjorn Borg, Jimmy Connors, and John McEnroe, were slugging it out at the world famous international tennis tournaments while in Singapore a stick of chicken satay was going for $0.10 per stick. Old Chang Kee was still a relatively small business concern comprising of small stalls selling snacks and drinks. Yes, that was way back in 1977.

In those days, nobody could foresee Old Chang Kee would one day be the success story it is now, probably not even the owners themselves. Fast-forward to 2017, it has grown to 80 outlets across Singapore with 2 central kitchens and 12 outlets overseas. It was incorporated as a private limited company in 2004. It became Old Chang Kee Ltd in 2007 and finally listed in 2008 on Catalyst-NS, a success story and perhaps an example of how an injection of funds can change the course of business. Meanwhile, the average price of a stick of chicken satay has gone up to around $0.60 to $0.70 per stick.

Yes, inflation grows, money grows, and so do businesses. Companies can come and go, rise and fall, just like those great tennis stars of the 70s. It’s survival of the fittest or the smartest. The guy who holds the trophy or the money is king! That’s the name of the game, even more so in business.

I believe, as long as there’s business, some form of money or legal tender is undoubtedly required, be it fiat paper currency, gold or silver, digital currency or even cryptocurrencies (A digital or virtual currency that uses cryptography for security). And on that note (no pun intended), business loans will always be needed. There will be a continual demand for it as surely as the sun rises in the east. Irrevocably, this brings to mind the reasons why business loans are still necessary even in these troubled economic times. There is really a myriad of purposes why loans are important for businesses, whether big, medium, or small. Even throughout man’s tumultuous financial history, business loans have always played a major role. Singapore companies are no exception. I reiterate, the guy with the money is king – and can do great things with it, and so can a company. Here are the 6 reasons why business loans are taken up by Singaporean SMEs.

1) When extra cash or an injection of funds is needed to start-up or jump-start or grow or even expand a business

  • Start-up companies, also considered SMEs, is the usual term given to businesses that are in the process of starting their business or are newly setup. They usually need extra funds or seed money from a business loan to help buy equipment or machinery, pay for down-payments and rental of premises, and to purchase inventory besides a host of other items. So this is where the business loan comes in.
  • In the case of longer existing SMEs, they might need extra cash to jumpstart the business. An injection of funds from a business loan can do wonders for fledgling companies (A company that has just opened its doors and gone into business). More money could be poured into advertising or to buy extra stock, tools, machinery, or even technology for greater automation to save time, cost, and increase productivity. All of these will certainly help boost a company’s profitability. And in the daily operations, working capital needed for it can come from a business loan. In which this contributes to grow a business in the long term and consolidate itself, besides providing a buffer as backup finance.
  • However, usually, the ultimate goal for any business to take up a business loan is to expand the company. The whole aim of a having a business is to make more money through real profit gain, and the best way to do that is usually through business expansion. So a business loan, in this case, can help a company buy more equipment and machinery, company vehicles, increase its workforce, set up more premises, etc.

2) When there’s a shortage of funds

  • As you already know, the primary reason in most cases, especially in SME companies, the lack of funds is most likely due to a cash-flow (the total amount of money being transferred into and out of a business, especially as affecting liquidity) issue. This problem could stem from various sources ranging from over-spending of funds which might have eaten into funds set aside for daily operations. Or maybe for buying extra inventory when a business surge is experienced or when payments are slow coming in from customers. For example, a construction company which builds small buildings or small housing schemes, is in need of money, because a promised payment is late in coming from the developer, and takes up a loan to sustain itself. An injection of funds through a business loan will most certainly help bridge a cash-flow gap. Incidentally, Forbes reports that 90% of firms usually fail because of cash-flow problems.
  • A business lull can also result in a shortage of funds for any given time for a company. This happens when money leaves the company more than funds coming in leading to cash-flow issues. This often occurs in economic cycles hitting low-levels and can cause companies to fail. Sadly, 50 -70% of start-up companies usually fail in the first 18 months of operation according to Business Insider.
  • Shortages of funds may be due to unexpected spending caused by a major breakdown of production machinery or a power generator in an SME factory. Or maybe because a company receives a huge fine from the government for unwittingly infringing on important business or manufacturing regulations. All of the above are further reasons for an SME to take up a business loan.

3) When a business loan is taken up, there’s no need to lose control or partial control of your company

Instead of bringing in an investor, I would myself, try getting a business loan for money needed due to my business having a shortage of funds or just wanting extra funds for various purposes. This means that by incurring a certain amount of debt, I don’t need to depend on an investor for those funds and thus avoid giving up shares and a certain degree of control of the company to that party.

4) When economic times are turbulent and while there are still business opportunities

Payments from clients or collections might be slow coming during rough economic times. Almost every Singaporean company has probably experienced this in the past and also in more recent times since late 2015 till mid-2017. From my own experience, taking a business loan in an adverse economic environment can save the day or even the company. And this applies very much so to SMEs. That’s why I emphasize here that many Singaporean SMEs need business loans and many do take them up.

But bearing in mind too that there is a silver lining in every cloud, as business opportunities can still be found in the worst of times. And again, the business loan plays an important role here. When some companies fail in turbulent economic periods, their competitors will move in on their territories left vacant and take over their clients or buy over their stocks and equipment. This often results in the competitor needing extra funds, and the issue is quickly resolved by an injection of funds in the form of a business loan.

5) Getting business loans is relatively easy if not easier now

Singaporean banks and licensed money lenders in the current economic situation are eager to give loans to SMEs. So it’s easier than ever before for SMEs including start-ups to obtain business loans. In 2016, banks like DBS and UOB have voiced interest in growing their SMEs loan books while Maybank Singapore wants to ‘aggressively’ target the SME segment. As for licensed money lenders, they are finding increasing numbers of Singaporean SMEs taking up loans from them in recent years. This could be because of Singaporeans in general, unlike in the past, now perceive licensed money lenders as secure, fair, and a convenient alternative as well as much more respectable. Furthermore, Singaporeans are more open-minded and well-informed than say, 20 years ago. Which I believe has much to do with the internet. They now know business loans do not require perfect credit scores by Singapore lenders or that banks are not the only source of loans.

Singapore’s government encourages SMEs to take up business loans and have set up the SPRING SME Micro Loans, SME Working Capital loan schemes and others in cooperation with various banks and financial institutions to encourage SMEs’ growth and start-ups. The government, in fact, takes up 50% of the default risk of these loan schemes. All in all, there is a myriad of choices for Singaporean SMEs to take up loans from, not to mention user-friendly mobile apps like FS Bolt that helps SME owners to apply for crowdfunding loans. Click here to find out more.

6) There are advantages and extra benefits in taking up business loans

You’re probably wondering what I’m trying to get at here. Well simply put, money attracts money or money makes money. Money can be used to enhance businesses that will attract more business. And more business means more profit. What better way for a company to obtain money it doesn’t have, than through a business loan that could result in the company gaining greater profits which would also negate the interests accrued on loan?

In Singapore, business loans to SMEs which often are unsecured loans, involve no collateral. What a great example of capitalism at its best! I strongly recommend SMEs take up business loans even if it’s just for extra cash to keep as a financial buffer against unexpected expenditure. Furthermore, what better way is there to make friends and build relationships in the financial world and open bigger avenues than to take up a business loan? As you build trust between the lender and you, by building his confidence in your ability to repay the loan according to schedule, greater opportunities and loans will be in the pipeline. And if you’re the computer geek type, there’s always online loan applications, e.g., DBS’s business term loan and even invoice financing by a licensed money lender. Interestingly, there is now also a mobile app for SME owners to perform effortless loan applications. Just click this link to learn more.

Singapore’s business environment has always been super competitive even more so now when companies are fighting harder to survive or succeed in this challenging economic period. And business loans although carrying risks almost invariably help companies beat the competition. Singaporean SMEs know this, hence the continued taking up of these loans.

With SMEs being 99% of Singapore’s enterprises and also with 70% of the country’s workforce working in these companies, the government, financial institutions, banks, licensed money lenders, and others will continue to place greater importance on them in the coming months and years. SMEs constitute the base of the pyramid that supports the larger corporations and companies at the pinnacle. Without SMEs, which are also Singapore’s economic backbone, the whole financial system of the country would collapse. Therefore, it’s correct to say that the financial systems and the government of Singapore hope to support the SMEs more by continually making business loans readily available to them. All the above ultimately contribute to why Singaporean SMEs take up business loans.

Think of all the missed opportunities that eluded many SMEs and start-ups over decades which didn’t make use of business loans and probably resulted in them failing or at least not succeeding. Think of those tennis stars, their fight for success, and who were superseded in time. And don’t forget that money grows, and that time affects business, cost, and inflation and that they aren’t static, just like the price of a stick of satay. Think of Old Chang Kee, its struggles, and how it overcame them, and its eventual success.

Funding Societies has a Capital Market Services License issued by the Monetary Authority of Singapore. Capital Markets Services License No: CMS100572-1 issued by Monetary Authority of Singapore (2016)

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