*Disclaimer: All information, commentary, recommendations or statements of opinion provided in this article are for general information purposes only. We do not claim to be authoritative. Please contact ask@lendingpot.sg if you have any questions or rectification requests.
First of all, I’d like to clarify that other than the publicly available information in news reports, my opinions about OCBC’s Serial Entrepreneur credit scheme are based simply on my experience and may not be representative of how it actually works.
This article is thus, not meant to provide insights on how to get the loan but to share my thoughts about “Why OCBC is doing this” and “What needs to happen before an SME’s credit can be assessed under this scheme”.
a) To attract new SMEs and penetrate deeper into existing SME accounts
Banks have always been accused of being only interested in “lending money to business owners who don’t need money”. It is natural to assume that when they offer a new service that lends a “helping hand” to business owners, they are trying to attract new customers.
However, OCBC is probably also trying to increase the usage of its services for its existing business account owners. This is logical since the cost of acquisition and the SME’s resistance to change will probably be lower if they are already existing account owners.
Very often, SMEs diversify and create banking accounts with multiple banks for their different businesses.
With this scheme, OCBC can encourage these business owners to consolidate their different accounts with them (how else would they know about your other business and if it’s successful), increasing both its brand and the product’s “stickiness”.
b) To cross-sell more products to each client, both lending and non-lending
Legally, it might be pretty difficult to grant a loan to a company “a few months before incorporation”. But I think there are some ways that they can still make the loan happen.
OCBC can grant personal loans to these business owners at interest rates that are reduced or similar to business loans. This is provided that there is still capacity for personal borrowing available on the business owner’s personal credit bureau score.
The bank may also choose to give a “conditional” business loan to the new entity, backed up by the director’s personal guarantee (PG), and the existing successful business’s corporate guarantee (CG).
This “conditional” business loan may be structured to give out partial amounts based on successful milestone completion (e.g. 20% initially, 20% after incorporation, 20% 3 months after incorporation etc).
c) To counter some existing unhappiness
As stated in the Straits Times article, business owners are often upset over the bank’s rigidity on business financing.
This scheme may serve as a way to improve the bank’s image amongst SMEs, although this is probably not the most important reason from the bank’s perspective.
1) Track record of strong repayment history and positive borrower behaviour, along with a successful business record
Other than “…the entrepreneur’s experience, business track record and overall business strategy across his or her group of companies”, the tangible statistics that the bank will probably look at is the repayment history and behaviour.
The entrepreneur must probably have successfully completed several multi-year loans with OCBC and have hardly any late payments or delinquencies.
Since this new credit scheme is very risky, it is important for OCBC to carefully select clients to minimize its losses.
2) Existing business loan borrowing with OCBC
As stated above, having existing borrowing will be critical for OCBC to judge an entrepreneur’s repayment history.
It might also indicate potential earnings for the bank, since the entrepreneur will be someone already open to taking a business loan to take their business further.
3) Capacity for the entrepreneur’s existing businesses to pay off any additional loan
Also as stated above, this new loan will most likely require a corporate guarantee (CG) from the SME owner’s existing company.
This will ensure that OCBC will still have a loan repayment source in the event that this new venture fails to work out and achieve profitability.
Logically, this means that the existing business must be strong enough financially to support the repayment of both its existing business loans and new loans for the new venture.
4) Strong Notice of Assessment (NOA), and positive personal credit bureau score (CBS)
The Notice of Assessment (NOA) is the proof of income provided to every tax-paying resident of Singapore. A high NOA is thus indicative of how profitable an entrepreneur’s existing company really is.
Along the same lines, the personal CBS is proof of the personal repayment behaviour of an individual. Since most SMEs are controlled by their owners, a positive personal CBS from the entrepreneur might then be predictive of the company’s repayment behaviour.
5) History of multiple business accounts with OCBC
We can’t expect the bank to know who is a “serial entrepreneur” and who isn’t, unless the business owner opens separate bank accounts for his different businesses with OCBC.
In order to be judged as a successful “serial entrepreneur”, each of these businesses must thus exhibit good profitability and cash flow in their bank accounts regularly.
This is important, and will allow the bank to be relatively confident that the new business might turn out to be successful, as that should be OCBC’s primary source of repayment.
Having said so much, I really could be wrong about the intention and the mechanics of OCBC’s Serial Entrepreneur credit scheme.
In the absence of more information, I have to say that this is a really good scheme as the financing landscape in Singapore is often viewed as being too rigid.
This might also encourage other local banks to create similar schemes to provide these types of financing, which will ultimately benefit many more SMEs in Singapore.
*Disclaimer: All information, commentary, recommendations or statements of opinion provided in this article are for general information purposes only. We do not claim to be authoritative. Please contact ask@lendingpot.sg if you have any questions or rectification requests.
a. Lendingpot.sg is one such Business Loan Marketplace. It gets much faster responses from banks and relationship managers.
b. Relationship managers need to compete for your business in the Business Loan Marketplace.
c. Relationship managers who can’t compete on price will try to compete with service.
d. Under urgent conditions, a Business Loan Marketplace can also provide a direct route to multiple lenders.
Lendingpot.sg operates a Business Loan Marketplace that allows an SME to connect to multiple lenders with just one application, allowing the SME to know who its prospective lenders are and the rates that they offer, in a very short time.
Eric Koh is passionate about helping SMEs grow and has spent years interacting with business owners at OCBC and IFS Capital. He is interested in 70s rock ‘n roll, the odd novel and copious amounts of historical trivia.
