SME Financing Singapore Guide

© Copyright Linkflow Capital, 2017
SME Business
Financing Guide
Ultimate Resource Guide
The complete resource and guide to SME financing overview,
loan products, improving cash flow & banks credit criteria.

Resource Guide Outline
For Whom
Directors, business owners
& finance managers of
SMEs operating in
Singapore.
c
Purpose
Introduction to SME
financing, loan facilities,
managing working capital &
cash flow, documentations +
key criteria in credit
assessment.

SME Financing Landscape
Below banks, financial institutions & alternative lenders are active
participants in local SME financing space.
DBS CIMB
SCB Ethoz Capital
Maybank UOB
RHB Singapura Finance
HSBC Hong Leong Finance
Citibank IFS Capital
OCBC Bank of East Asia
Moolahsense Funding Societies
Sing Investments & Finance Bibby Financial Services

Loan products
Unsecured Term Loan
o Unsecured funding for working
capital needs, no collateral
required
o Turnaround time for assessment
2-3 weeks
Commercial/Industrial
Property Mortgage
o Secured loan to finance assets
acquisition
o Can also pledge unencumbered
property to banks for facilities
o Property financing usually bears
lowest rates.

Loan products
01
Factoring is short-
term borrowing
used to improve
working capital
and cash flow
position
w
02
Business sells its
receivables
invoices to a
bank/FI at a
‘discount’ rate
03
Banks/FI advance
80%-90% margin
of the invoices
value in cash to
company
04
infographicOn notification
or non-
notification
basis
Z
Factoring/Receivables financing

Loan products
01
LC/TR trade lines
& local invoice
financing
f
02
Revolving credit
line finance
materials &
inventory from
local/overseas
suppliers)
03
Banks pay
supplier directly
while granting
90-120 days
credit terms
04
infographicAble to use LC
for overseas
suppliers to
reduce risk of
international
trade
4
Trade Financing

Trade Financing
01
02
03
04
Buyer
Issuing Bank
Seller
Advising/Confirming
Bank
Keyword
Contract
Letter of Credit
Application
Letter of
Credit
Advice of Letter
of Credit

Loan products
Business Overdraft (OD)
o Revolving credit line for short term
funding requirements
o Interest accrued only when utilized
Machinery/Equipment/
Vehicle Loans
o Financing to acquire asset
o Interest rates typically lower due to
security provided in favor of banks
o Typically structured in form of hire
purchase

SME Financial Management
Managing
Cash Flow
Cash flow is the
lifeblood of every
business
w
A rule of thumb in
managing cash flow is to
delay outflow of cash as
long as possible
and expedite receivables
from customers as fast
as possible
+

Concept of “Profit”
versus “Cash Flow”
Profit is not equal to cash flow
"Profit / Loss“ are figures of how much
money you have made/lost after deducting
all business expenses
At point of sale, may not receive payment
yet
"Cash flow" is the difference between cash
inflows and outflows of your business
transactions
P&L profits might not reflect actual
profitability of a business if cash flow
negative

Profit vs Cash Flow
Although both companies
reported same profits,
company A has better
cash flow management
as it’s able to collect
higher deposit
from it’s sales
while having
longer credit
from suppliers

Improve Cash flow
Forecast cash flow
Create 12 months
cash flow budget and
forecast
Improve profitability
instead of revenue
Look into ways to
reduce your buying
price and manage your
operating costs
Diversify
procurement .
Look for
alternative supply
sources that is
cheaper.
Negotiate credit
terms with
supplier
Practise financial
management discipline
Raise money ahead of time,
spend only where
necessary & invest in assets
that can generate more
business and cash.

Review debtors list frequently to monitor ageing
Agree payment terms in advance
Establish proper credit practices & control
Establish limits for each category of customer -
never allow exposure to slip beyond these limits
Constantly review the limits during slow economy
periods or to customers in weak industries
Agree up front payments or payments on
completion of milestones
Improve collection turnaround cycle –Try to
negotiate advance payments for goods/services
with credit terms
Debtors Management Control
Improve Cash Flow

Improve Cash Flow
Inventory Management Control
Carry out frequent stock takes
Know the number of times each major item of
your stock turns around in a year
Consider selling slow moving inventory at a
discount or bundle with other products.
Analyze stock by product type and identify fast
moving inventory / stock
Review security process to ensure no stock
pilferage
Review production process and eliminate
bottlenecks which delay delivery
Increase stock turnover cycle - Procure just-in-
time or carry stocks that have faster turnover

Financing
Golden rule of
financing
Do not take short
term borrowings
to fund long term
assets
Moderate
Match the maturity of the assets
with the maturity of the financing.
Aggressive
Use short-term financing to
finance permanent assets.
Conservative
Use permanent capital for permanent assets and
temporary assets.

Financing
Lower Dashed Line Would be more Aggressive
Fixed Assets
Perm C.A. L-T Fin:
Stock,
Bonds
Years
$ Short Term
Loans
Temp. C.A.

Financing
Financing
Options
Debt
Financing
Equity
Financing
Hybrid
Financing
Private Equity
Financing
Working Capital
Financing
Asset-based
Financing
Injection of
Capital
Loans with Equity
Conversion Rights
Equity Injection with
Exit Plan
Factoring of Debt
LC/TR Financing
Unsecured Term
Loan
Hire Purchase
for Equipment
Term Loan
Accelerate Business
Growth
Angel Investors/
SEED Financing
Accelerate
Business Growth

Business must illustrate that it has
Good banking
conduct, ensuring
there is always
adequate cash
balances and no
record of bounced
cheques
Good credit history,
which applies to
both the business
and the business
owners
No past or
current litigation
that will
adversely affect
the business
going-concern.
Business Loan Application

E.g. of litigation
search report on
companies/business

Sample of individual
credit report. The
alphabets reflects the
payment status:
A:< 30 days past due
B: 31-60 days due
C: 61-90 days due
D: > 90 days due
F : Closed with
outstanding balance
W - Default

f
Provide good quality historical
financial statements, preferably
audited, and up-to-date
management accounts
Have a concise business plan that
explains the business growth, loan
amount required, use of funds and
expected repayment means
To improve business loan application approval chances:

Business Loan
Application
Common documents required
Latest 2 years financial report
Latest management accounts
Last 6 months operating bank statements
Latest GST returns (if GST registered)
Latest debtors and creditors aging list
List of major suppliers & customers details
Recent contracts/projects listing
Directors’ latest 2 years Notice of
Assessment

Documentations
Bank statements presents current view of
company’s operations.
Generally, banks will look out for returned
cheques/Giro due to insufficient funds.
Total deposit figures/month indicate if
there’s drop in revenue compared to
previous years revenue
Average cash float maintained in statements
is indicative of cash flow health.
Very wide gap between highest & lowest
bank balance figure might indicate cash flow
volatility
Improve Cash Flow

Documentation
02
03
01
Most banks will
screen financial
statements key
ratios to determine
credit worthiness
Most banks generally
do not finance to loss
making or negative net
worth companies
Financial
statements are
most important
document for
credit assessment

Common ratios in financial statements analysis
Current ratio
A liquidity ratio that measures a company's
ability to pay short-term obligations
Current assets / Current liabilities
i.e. = $2,680 / $1,145
= 2.34x

Receivables turnover days
An accounting measure to quantify effectiveness
in extending credit & collecting debts. Receivables
turnover ratio is an activity ratio, measuring how
efficiently a firm uses its assets
Receivables Turnover Ratio
Net receivable sales/ Average
net receivables
Average Creditor payment period
Trade Payables/Credit Purchases x
365 = Average Payment period in
days
Average Debtor collection period
Trade Receivables/Credit Sales x 365 =
Average collection period in days
Average Collection Period
365 / Receivables Turnover Ratio

Gearing ratio
Compares some form of owner's equity (or
capital) to borrowed funds. Gearing is a
measure of financial leverage, demonstrating
the degree to which a firm's activities are
funded by owner's funds versus creditor's
funds.
Gearing Ratio = Long Term Debt/ Share
Holder Equity
Common ratios in financial statements analysis

Business owner do not want
to pledge personal guarantee.
No bank will lend without PG
from director, especially so for
unsecured lending. Providing PG
indicates directors are confident
of repayment and is a form of
assurance.
Not willing to increase paid up
capital.
It is tough for banks to lend to
company with $1 capital. Directors
need to have some ‘skin in the
game’ before banks are willing to
lend as it indicates directors are
vested in company as well.
Common misconceptions about financing

Banks should lend to those who
need funding.
Banks are not non-profit
organizations, need to answer to
shareholders and board. They can
only finance borrowers who can
display the ability and means to repay.
Documentations are a hassle.
Some companies reluctant
provide full info & documents
required by banks. Banks require
standard documents to process
applications and no banks will be
able to provide assessment
without.
Common misconceptions about financing

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Summary
We hope you’ll find this guide a useful resource for SME financing and cash flow management.

SME Financing Singapore Guide

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