How to increase your chances of obtaining a SME working capital loan in Singapore

Since the announcement of the Temporary Bridging Loan for SMEs extension to March 2022, I thought this would be good timing to share methods on how you can increase your chances of obtaining a working capital loan. 

At the start of the Covid-19 pandemic, SMEs were relieved to receive support from the government through participating financial institutions (“FI”). While many companies received this support, a large number of SMEs did not get the support they were looking for, as ultimately, the lending decision is made by the participating FI, and these decisions are made based off their lending parameters.

Before you apply for the Temporary Bridging Loan, here are some tips that can possibly help reduce waiting time and uncertainty. 

Purpose of the loan:

The purpose of the loan should be as specific as possible. Try to get into the details to help lenders understand that the requirement is genuine and that the money will help propel the business forward. 

For example, you need working capital to purchase goods worth $100. You are making this purchase to service an order from an existing client. 

Presentation of financial documents:

It is really important to have your financial documents prepared and well presented. Lenders appreciate and find it helpful to have your reconciliation up to date to a current and accurate picture of your company’s financial standing.

Plans moving forward:

In the same way investors want you to pitch about your company’s future, lenders are equally interested in where the company is going over the next year or two. These plans should be realistic and backed by numbers. 

By providing lenders with a realistic roadmap, you can assure them that you will have the means to pay on time for the duration of the loan.

You can do this, for example, by sharing new contracts you have obtained, how this new contract will increase revenue, how it will impact operating expenses, and ultimately how this impacts your profitability. It would be helpful to lay out your plans in the following format:

Revenue – what is the potential outcome of your new contract? Conversely, if Covid-19 has a negative impact on your business, what are your plans to ride this down trend?

Gross Profit Margin – As obvious as this sounds, your cost of goods should not exceed your revenue.

Expenses – What does an additional contract mean for your business? Would you have to hire additional headcount? How would it ultimately affect your profitability? Conversely, if your business is severely impacted by Covid-19, what are your plans to reduce expenses and to remain profitable? If you are expected to make losses, what are your plans to stay afloat? For example, we have seen travel companies pivoting to conducting virtual tours. Share these plans with your lenders to get them comfortable with putting money on the table. 

I hope you find this narrative interesting to you. If there are topics you would like us to cover, drop us a message at [email protected]

How your credit score helps you raise capital and manage risk.

Raising Capital

Unless your company is flushed with cash and you never have to worry about capital ever again, you’re probably faced with a common problem: getting money through the door is challenging and expensive. While skilled negotiation, an airtight business plan, and convincing managerial experience can take you far, there is another often overlooked tool in the fundraising toolbox that can be leveraged to take you even further: a strong credit score. 

When people think about credit scores, they think about individual credit scores. A person’s score has several useful and arguably necessary functions. For example, the score can determine what kind of loan you get and the rates you pay. It can also determine your insurance premium, how much you spend on your cell phone plan, and whether the landlord asks you to put down a one- or four-month security deposit. Your individual credit score, therefore, affects how much money you can access and whether you’re saving a bundle or getting hammered. In other words, with a good score people will find it easier to trust you.

Fortunately, the same credit score principles that apply to an individual can have the same impact on a company. If your company needs a working capital loan and your credit score is stellar, you’ll be able to get more cash at cheaper rates than if you couldn’t provide a score at all. If your company is looking to rent a larger space because you’re expanding, you can use your credit score to negotiate a better monthly rental and park less of your money in the security deposit. In other words, with a good score you will have more bargaining power and less cost.

Managing Risk

Raising capital is just one of the ways your credit score can be beneficial. Let’s say you run a coworking space, full of space for bright eyed startups who need are looking for a place to establish themselves. Some of them are well-run, some of them aren’t, which means that some of them pay on time and some of them may not. If you could get a quick health check on all your occupants, you’d know exactly who to talk to and who looks like they might be struggling and avoid potentially incurring bad debt. And for the companies who have great scores, you could consider offering a reduction on the security deposit to keep them happy with staying in your space. 

If your business is heavily dependent on certain players in your supply chain, having an eye on their financial health and getting their credit score can help you avert a major crisis by looking for alternatives before a portion of your network goes under. On the other hand, if these entities have strong scores, you can improve your relationship with them by providing them better terms. 

LyteScore

So how do you get a viable credit score? Simple, send us your financials and your AP/AR aging reports and we’ll churn out one of two reports, according to which you prefer. Our “Lite” report is quick and easy: you’ll get your score and a breakdown of your financial metrics. If you need something more involved, our “Essential” report will give you everything the Lite report does, plus an in-depth analysis of your finances. You can apply insights gleaned from the report to tighten up areas of your business and/or use it as leverage when navigating a capital injection.  

To benefit from all of the above, e-mail [email protected].   

-Jean Butel