Micro loan is cheaper and better option for small local enterprises

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Author: Ravi Philemon

SME Micro Loan is cheaper than the other types of loans.

By: Hitesh Khan/

All SMEs should explore this option prior to the other types of business term loans, working capital loans or using personal loans in their capacity. As part of the government’s plan to help SME with their cashflow, Enterprise Singapore launched the Local Enterprise Finance Scheme (LEFS). SME Micro Loan is one of the loan programs under LEFS.

Micro Loan

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What Is SME Micro Loan?

The SME Micro Loan is a government assisted financing scheme to help local SMEs access financing. Through the SME Micro Loan, companies can get access to working capital financing to support their day-to-day business operations.

Which Financial Institutions Are Participating In The SME Micro Loan Scheme?

In Singapore, there are 9 financial institutions that are participating in this SME Micro Loan scheme.

Ethoz Capital Maybank RHB
Hong Leong Finance Orix Leasing UOB

Table 1: SME Micro Loan Scheme Participating Financial Institutions

How Much Can You Borrow From The SME Micro Loan?

Under the SME Micro Loan, you can borrow up to a loan quantum of $100k. The repayment period for the SME Micro Loan can be stretched up to 4 years.

How Can You Qualify For SME Micro Loans?

In order to qualify for SME Micro Loan, your company needs to be registered and operating in Singapore. In addition, at least 30% of the shareholdings need to be owned by a local or PR. It does not have to be owned by a single local individual. For example, if there are 4 Singaporean shareholders with 7.5% shareholding each, your company will also qualify for SME Micro Loan.

Apart from ownership and registration criteria, your company also needs to have at most 10 employees. Alternatively, if your company’s annual sales turnover is less than $1M, you will also qualify for SME Micro Loan.

Most times, your company also need to be profitable in the latest year or 2 years out of three years. Cyclical downturns in some industries last much longer, this means that

How Long Do You Have To Wait For Your SME Micro Loans To Be Approved?

The typical wait time for an SME Micro Loan application is between 2 to 4 weeks. The long wait time is usually a result of back-and-forth emails requesting for documents and information gathering by the bank. However, if you were to engage a loan consultant, you can reduce the wait time to as short as one week.

Are SME Micro Loans Guaranteed Approval Loan?

Unfortunately, SME Micro Loan is not a guaranteed approval loan. This means that there is still a chance that your application will get rejected. In the event that your application gets rejected, you will not be able to submit another application within the next 3-6 months.

What Is The Interest Rate Payable On SME Micro Loan?

Officially, the interest rate for SME Micro Loan program is subjected to the participating financial institutions’ risk assessment process. You can realistically expect the interest rate on your SME Micro Loan to be between 6-8.75% per annum (effective interest rate). This means that each bank might offer SME Micro Loan with different interest rate.

In order to get the best interest rate on your SME Micro Loan, you need to send in an application to every financial institution and view their offer. However, most SMEs cannot afford the luxury of time to do that.

Lesser known among SME Loans is the Working Capital Loan for small business (SME) owners. The objective of the SME Working Capital Loan is to give business owners greater access to unsecured working capital loans of up to $300,000.

Launched in June 2016, the loan acts as an additional financing option by helping eligible companies cope with larger working capital and cash flow needs.

Enterprise Singapore partners Participating Financial Institutions and co-shares 50% of loan default risks in the event of company insolvency, but the loan programme will only be available till 31 May 2019. The best way to pre-assess your eligibility to access this loan before it expires is to speak to a mortgage consultant.

Applicants who are successful with their Working Capital Loan will have up to 5 years to repay their loan. Different financial institutions offer the SME micro loan with different interest rates and it is subject to their assessments of risks involved.

To be eligible for the SME Working Capital Loan companies should be registered and operating in Singapore, have at least 30% local shareholding, with group annual sales of up to S$100 million or group employment size of not more than 200 employees. Annual sales turnover and employment size will be computed on a group basis (i.e. all levels for corporate shareholders holding > 50% of total shareholding of the applicant company and any subsequent corporate parents, and subsidiaries all levels down).

Besides these 2 loans there are other SME Loans and insurances owners of small enterprises can have access to, including alternative venture debt financing for innovative, high-growth companies of up to S$5 million for their business expansion; and financing of up to S$15 million to purchase equipment, machines or selected factory properties.

As a high number of applications for SME Loans are unsuccessful, it is important for passionate business-owners to work with trusted hands, and people who know the industry. Personal loans should not be off the list of considerations if they are really passionate about their business. Affordability Tools are also helpful to help you make better borrowing decision.

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