While Covid-19 is going endemic, one thing we know isn’t - the Temporary Bridging Loan (TBL). To assist businesses in navigating the uncertainty of COVID-19, TBL was first offered in March 2020 as a support scheme from the Government. This action gave businesses the security and certainty that they would once more have access to affordable working capital to help with their cash flow challenges. However, with the pandemic finally abating, so are its support.
As announced earlier in the year, the TBL has been further extended to 30 September with the total loan quantum across all institutions reducing from S$3mil to S$1mil and the interest rate cap moving from 5.0% to 5.5% p.a, signalling an end of an era for cheap and easily accessible financing.
Under TBL, the borrower is responsible to repay 100% of the loan amount. However, when a default occurs, the participating financial institution or the bank while obliged to follow the recovery procedure, can claim up to 70% of the unrecovered amount from Enterprise Singapore. This means that banks can bear to take riskier clients out of their regular credit criteria such as:
Under the TBL, interest rates are capped at 5.5% p.a. which is artificially below market rate. Without similar risk share proportions, it is unlikely that the 5.5% p.a interest rates will be sustainable especially when global interest rates are rising. We expect rates to easily go over 6.0% p.a. on an effective rate basis. We are already seeing increases in processing fees for TBL across banks to reach up to 1.5% as banks attempt to cover the cost of interest rate hikes.
Thankfully, the next better government support loan programme is not too far off – the SME Working Capital Loan (WCL). The working capital loan which was available prior to the release of TBL is meant to support SMEs (companies with less than S$100 mil turnover) with Enterprise Singapore sharing the risk with partnering financial institution by 50% and 70% for new companies with less than 5 years in business. This is just a small reduction of risk sharing from the TBL and thus allowing banks to remain rather easy on their credit assessment.
The only other downside is that the maximum loan quantum is at S$500,000 per borrower compared to S$1 mil for TBL. This has increased from S$300,000 prior to Covid-19 and is available to 31 March 2023. That said, this facility can be stacked with an existing TBL. Meaning, a customer with a S$1 mil TBL facility can still qualify for a WCL facility up to S$500,000.
Key Notes:
Another viable option is an in-house unsecured bank loan. This is a product that is offered without any risk-share from Enterprise Singapore. This means that the bank bears the full risk of the loan and thus has the strictest of criteria or a higher interest rate charged. Each bank have their own naming of its loan - For UOB, it is called the UOB BizMoney, for OCBC they may call it the First business Loan and so forth. What is to note is that the loan amount tends to vary between S$100,000 to S$350,000 with interest rates ranging upwards of 8.0% to 12.0% p.a. and a tenor of up to 5 years.
Main criteria remains the same with local shareholding of 30% and a guarantor of at least S$30,000 in annual income.
Finally, with the removal of TBL and its interest rate caps, non-bank alternatives no longer appear too uncompetitive with their 1-3% per month interest rate. Without Enterprise Singapore to share the default risk, we will observe more borrowers who are rejected from banks shifting towards alternative non-bank lenders. This is simply because of the non-program nature of their lending; relying on non-traditional data or customer interactions to determine credit quality. If you are keen to find out more about the non-bank business lenders in Singapore out there, we have prepared our top choices in the market for 2022.
Your most obvious game plan is to leverage on Enterprise Singapore’s support as much as possible by obtaining a TBL or WCL in its fullest. One of the biggest struggle that many SMEs face is in the application stage and competition of attention and span from their bankers especially from the local banks where case loads are high. In such a scenario, bankers tend to de-prioritise cases which are more challenging even though they may get approved. This is where an application through a business loan broker might be helpful despite a fee that is charged. This is because your broker is typically well connected to a banker that prioritises his case and is able to gain full access to the status of your application unlike when you apply online and wait for a system to be updated. For bank loans, applying with a broker increases your chances significantly. This is why we avail an option for you to engage a physical broker on our Lendingpot platform at a small fee when it comes to bank loans.
This is the last 2 months before TBL ends, apply on Lendingpot today and request a broker to speak to you for free as you chart out your financing plan.
Benjamin heads up Lendingpot with a background in all things SME. He was previously a commercial banker at Citi with experience in Relationship management, Credit Risk, Trade Operations and Corporate FX sales; and understands the difficulties SMEs face in this opaque world of SME financing.
