What are Grants & Loans Available for SMEs in Singapore

applying for a government grant or getting loan in singapore

Singapore is best known for providing favourable working conditions for small and medium enterprises. Some of the tax credit and incentives available to SMEs include investment allowance, pioneer tax incentives, merge and acquisitions allowance and many more. Recent research indicates that the SMEs employ two-thirds of the total workforce in Singapore.

The government has gone an extra mile to offer grants and loans that are meant to help Singapore companies thrive and overcome common obstacles such lack of enough capital to support their daily operations.

Below is a comprehensive review of grants and loans that you can take advantage of to establish or grow your business in Singapore.

Grants for SMEs in Singapore

Productivity and Innovation Credit (PIC)

Productivity and Innovation Credit is a grant that was created by the Inland Revenue Authority of Singapore. Singaporean businesses who meet the set requirements can enjoy tax deductions, PIC bonuses, and Cash Payouts. It supports development and research, acquisition, registration, intellectual property, approved design projects, automation equipment cost, and training of personnel and approved design projects.

Eligibility: Sole proprietors and Singaporean companies

How PIC works? In this scheme, businesses can get up to 400% tax deductions totalling $400,000. Alternatively, they can opt for 40% cash pay-out of a maximum of $100,000. It is important to note that the PIC scheme expires immediately after the Year of Assessment (YA).

ACE Startups

Government agency, SPRING Singapore, is mandated to manage ACE Startups Scheme for all first-time entrepreneurs who have innovative and implementable business ideas. Concisely, the scheme provides not only mentorship support but also capital grant to the entrepreneurs. To ensure that only qualified persons benefit from this grant, Accredited Mentor Partners (AMPs) is authorized to vet and select all applicants. AMP also provides networking contracts, professional advice, and learning programs to the startups.

Eligibility: First-time entrepreneurs who are Permanent Residents or Singaporeans automatically qualify for this scheme. AMP also considers the uniqueness of the business idea, the feasibility of the business model, potential market value, and the management team.

How the scheme works: Simply put, for every $3, entrepreneurs, or startups that qualify get $7. At the moment, the scheme is capped at $50,000.

Early Stage Venture Funding (ESVF)

Initial Stage Venture Funding is an initiative of Singapore government that is meant to support Enterprise and Innovation. This is the largest equity scheme in the country that co-funds Venture Capital firms and startups in various industries. A majority of the beneficiaries are early-stage technology startups that are currently based in Singapore.

NRF (National Research Foundation) provides $100 million to startups that qualify for this program on a matching basis. It is also important to note that venture capital firms are given an opportunity to buy NRF shares within five years.

Eligibility: Startups in the technology sector

How it Works: Startups that qualify are co-funded by National Research Foundation with up to $10 million with approved Venture Capital firms. Eligible businesses in the technology sector can get a grant of up to $3 million through this scheme.

Financial Sector Technology and Innovations Scheme (FSTI)

Momentary Authority of Singapore created financial Sector Technology and Innovations Scheme with the primary goal been to support innovations. So far, MAS is estimated to have invested more than $225 million in this grant scheme. One of the main purposes of this SMEs grant is to give financial institution the financial capability they need to establish modern innovation labs in the country. The scheme also aims to support the development of technology infrastructure and innovation solutions.

Eligibility: Singaporean Financial Institutions (FSIs), technology startups, and solution providers working with accredited financial institutions in Singapore.

How it Works: Momentary Authority of Singapore funds 50%-70% of the total calculated qualifying costs. The total funding should not exceed $200,000 and the funding period is capped at 18 months.

ComCare Enterprise Fund

ComCare Enterprise Fund is one of the new grants for startups provided by the government. It was created to provide capital to social entrepreneurs who have credible and implementable business ideas. It is managed by the Ministry of Social and Family Development, and the primary objective is to support social enterprise startups. Startups that have been operating for at least two years can apply for this grant.

Eligibility: All Social enterprise startups that major in training and hiring Singaporeans who have special needs

How it works: ComCare Enterprise funds 80% of the total capital expenditure and operating costs of up to $300,000 during the first two years.

Capability Development Grant

Capability Development Grant is a unique scheme by the government meant to offer the much-needed financial support to SMEs. The primary objective is to build capabilities in specific areas of business such as the cost of certification, training, cost of purchasing equipment, and consultancy.

SPRING Singapore manages this grant and SMEs that have plans to develop new products under CDG program can apply. If approved, the SMEs can get funding of up to 70% of the total cost of designing the new products, developing, and manufacturing process.

Eligibility: SMEs that is already incorporated and operating in Singapore

How it works: As mentioned earlier, qualified startups can get up to 70% of the total cost of designing and developing the new product. The maximum eligible startups can reach $30,000.

Technology Enterprise Commercialization Scheme (TECS)

Technology Enterprise Commercialization Scheme is a grant offered by Singapore government to help SMEs bring their technology-based business ideas into reality. That is, the scheme focuses on assisting entrepreneurs to scale up their business past the seed stage and then get funding from other third parties to achieve their set growth rate and revenue. TECS is one of the common two-tier startup funding grants in Singapore.

Commercial merits and technicality of the idea are two of the primary factors that are used to determine which proposals qualify. Since its inception, TECS has proven to be immensely important to SMEs that already have strong technology intellectual property and business model.

Eligibility: Companies/businesses that are registered in the country and have been operating for less than five years, IP based and offering technological solutions that commercially viable.

How it works: Proof of value at $500,000 and Proof of Concept at $250,000

Loans for SMEs in Singapore

Accounts Receivable Loan

Accounts Receivable Loan is a working capital loan that is taken out depending on an SME account receivables such as cash or invoices owned by clients to the company. Two of the primary factors that are used to determine the loan limit include the age of the receivables and the total amount owed. In most cases, the financial institution usually gives SMEs an accounts receivable loan that is equivalent or less than the receivables value.

One of the benefits of this loan is that it improves cash flow by resolving the problem of cash trapped in unpaid invoices and debts.

Merchant Cash Advance Loan

Merchant Cash Advance Loan is very similar to the Accounts Receivable Loan as it entails exchanging future assets for immediate cash. The main difference between the two loans is the asset that is traded in. For merchant cash advance loan, the future credit card sales are used to get the loan. The newly acquired upfront working capital can be used to support daily expenses such payment of wages and purchase of raw materials.

Daily deductions that are a specific percentage of the total amount loaned are used to repay the loan. For example, the startup can agree with the merchant to deduct 20% of the daily credit card sales until the loan is repaid in full. It is also important to note that this kind of loan is only available to businesses that allow customers to make credit card payments.

Trade Credit Loan

Trade Credit loan allows Singapore SMEs to delay payment for services and goods. The financial institution or bank pays the suppliers upfront thereby giving the businesses an opportunity to use the goods for sales and manufacturing purposes. This kind of financing has proven to be very helpful for companies that are only to pay after cash inflow from product sales.

If the business is unable to repay the trade credit loan on time, the Singapore lender or financial institution apply Trust Receipt concept.

What is Trust Receipt? Simply put, this is an arrangement that allows the SME to repay the loan on an instalment basis.

Business Term Loan

Business Term loan is one of the easiest to understand working capital loan option available to businesses in Singapore. The loan is repaid in a straightforward, structured way that is agreed upon by both the business and loan provider. Concisely, the credit is offered with a fixed repayment period that is usually 1-5 years.

The interest rate on this kind of SME loan for Singapore business can be either variable or fixed – it all depends with the financial institution’s terms and conditions.

Overdraft/Line of Credit Loan

A line of credit loan or bank overdraft is considered one of the most flexible ways small and medium enterprises in Singapore can get financial support from an individual lender or the bank. One of the highlights of this financial option is that it allows the business to benefit from cash supply within the limit set by loan providers for working capital. Overdraft loan also gives business a certain degree of repayment flexibility as they can repay the loan at any point without incurring an early repayment penalty.

The only caveat is that the overdraft is subject to an annual review by the financial institution. The business is required to return the difference in amount after the yearly review to the bank immediately. Failing to do so can affect the credit record and score of the company negatively.

Let us go a step further and look at five reasons why SMEs in Singapore need working capital loans and financial support from the government through grants and schemes.

Cash Flow Challenges

SMEs especially young start-ups experience cash flow challenges. Being able to generate enough steady income to support all your operations may not possible. A working capital loan will come in handy and help meet you businesses daily, weekly, or monthly financial needs. It will bridge the fiscal gap between accounts payable and accounts receivables.

Freedom to Explore New Business Opportunities

Timing is crucial when making critical business decisions especially those that could help your business scale up. Without enough capital, you will not be able to explore new business opportunities. Working capital loan and grants can help you out by giving you the finances that you need to take full advantage of these new opportunities and expand your business to its full potential.

In some instances, the value of the loan could be less than the cost of missing an opportunity that could have helped grow your business. For example, the Capability Development Loan will give you enough capital to design, develop, and manufacture new products.

Sales Fluctuation

Large peaks and dips in demand for your products and services have a significant impact on your business. Some of the common factors that cause the fluctuations include seasons, trends, change in the local and global economy, technological advancement, and population.

Having enough capital will help you to respond to changes in the market effectively and cushion your business from going down.

Emergency Fund

As an entrepreneur running an SME in Singapore, having a financial reserve to help your business tide over unexpected changes in the market is essential. Unforeseen occurrences can come knocking on your door no matter how accurate your business projections or plans may be. Access to a loan or grant will help salvage your business from this kind of situations without excessively altering your financial plans.

Debt Restructuring

It can become strenuous to monitor multiple repayment terms if you take loans from different financial institutions at various stages. Why take multiple loans when you can apply for one working loan that meets all your financial needs. The credit will also minimize the risk of defaulting on any existing debts.

Closing Remarks

Singapore is no doubt one of the best countries to set up a business. Be sure to take advantage of the numerous incentives offered by the government as well as loan options to establish the business fully in the country.

 

DISCLAIMER: please refer to the appropriate institution for the prevailing grants or loans available as details and availability may have changed since the time of writing.

 

October 22, 2018

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