It’s not easy to be the owner of an SG-based SME. The financial sector applicable to the activities of small companies has undergone significant modifications in the last couple of years, and while the economy has grown and now Singapore is one of the richest countries in the world, the difficulty of maintaining positive cash flow and expanding operations makes the climate for SMEs ultra-competitive.
Therefore, it’s no wonder that a lot of small companies have used in the past or are contemplating utilising in the future the services of lenders specialised in business credit packages. SMEs in SG:
• Face constant cash flow difficulties caused by the rising utilities costs and the almost-impossible fees associated with suppliers and rent. Around 82% of business failures are linked to cash flow management issues, and SMEs active in SG are no exception to the rule.
• SG-based SMEs have limited access to capital. SG is home to around 350,000 enterprises, around 80,000 of them being comprised of international companies. Our country is a fast-developing multilingual economic hub that has led to the development of Asia’s healthiest financial sector. But this density of companies also makes it difficult for them to get established in the market. Capital constraints are therefore a constant issue for SMEs, and so is marketability.
What Are Some Expenses to Consider as an SME?
Applying for a Singapore SME loan becomes easy to justify when considering the rising operational expenses associated with the services of small-to-medium-sized companies active in our country.
• Even before establishing the basics of your venture, you will need to cover costs such as: business licenses, company registration fee, the registration of your business name, and the miscellaneous accounting expenses associated with the first round of your staff’s payroll
• Then, you will need to account for corporate rental costs. In SG, office rental costs can vary from a somewhat affordable value of S$3,80 per square foot, to more than $S15 for the same surface. The rental rate depends on location, building condition, and the tenant’s profile margins.
• One should also not forget about salaries and advertising services. The average gross salary per year for the 21–25-year-old age group stands at S$44,975, while for more experienced workers, you could expect to provide salaries that expand beyond the S$100,000 mark. Plus, marketing efforts in SG are expensive. A proper SEO plan, required for increased digital service, can cost you from a couple of hundred dollars per month to more than a few thousand.
When Is It Time to Consider an SME Loan?
A Singapore SME loan can be a financially intelligent move to make if you currently don’t have the right monetary resources for proper business expansion, but your venture’s long-term development is directly tied to the business modifications you can make around this period.
A high-quality SME loan can be a way to bridge temporary cash flow shortages, invest in opportunities with a significant ROI potential and delay the economic repercussions of negative modifications in the local markets. When should you consider a business loan?
1. You Are Out of Cash
Cash flow gaps are the number one reason for business failure. A loan, while not exactly suitable for any kind of financial difficulties, can be a way to cover payroll expenses, supplier invoices or rent till your venture’s current market position improves.
2. You Need to Invest
The long-term development of your SME’s products/services will be largely dependent on the R&D budget you have at your disposal. A business loan in Singapore can open up your firm to new opportunities for market expansion, help you purchase inventory in large quantities, give you the resources required to expand to new SG areas, and help you launch new services.
3. You Are Waiting for Payments
The problem with invoices is that they have a payment period that can range from a couple of days to more than three months in exceptional cases. While this is necessary for a fully functional economy, it’s not exactly good news if you need capital but the revenue is tied up in unpaid invoices. A business loan can provide you with the funds necessary to cover operational expenses, while your clients and/or business partners pay for the services you provide.
Is A Business Loan in Singapore Worth It?
Yes, but it depends on what you are looking to do with the obtained funds. In Singapore, a business-focused loan package can be utilised to:
• Improve your venture’s cash flow situation
• Support business expansion
• Pay off salaries or finance purchases
• Reduce long-term business costs by helping with efficient asset purchases
That said, they might also not be worth it if:
• You don’t have a clear purpose for the contracted sum
• You cannot realistically handle loan repayments anymore
• The expected ROI is lower than the total costs of borrowing
Loans Are a Safe and Widely-Used Solution
In SG, the framework applicable for the establishment of SMEs is well-established, and in order to conduct their activities in the territory, businesses must register with ACRA. But achieving compliance with the framework can be time-consuming, and more importantly, quite expensive. Rather than using all available cash for achieving compliance with national SME regulations, a business-focused loan can be a way to retain funds for day-to-day operations while also investing in ROI-promising activities.
Sure, before taking out a loan, it’s important to compare different financing options, understand the total cost of borrowing for the contracted financial aid package, and become familiar with the financial framework applicable to SG-based SMEs. That said, as a general rule, loans in our country are safe, as their legal framework is well-established.
Can a loan strengthen your firm’s current financial position while not placing any more strain on the profitability of your monthly operations? Then, it’s obvious, isn’t it? A loan can open new business opportunities for your organisation and give you the flexibility required to expand your operations and try new things.
