A Guide to Government-Assisted Loans | OCBC Business Banking SG
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A Guide to Using Government-Assisted Loans to Weather Economic Uncertainties

A Guide to Using Government-Assisted Loans to Weather Economic Uncertainties

  • 08 October 2020
  • By OCBC Business Banking
  • 10 mins read

Even before the COVID-19 crisis, access to financing was already one of the top challenges facing SMEs in Singapore. Today, this need has only become greater.

While it is critical for a business owner to know how to get funding, many SMEs may not be able to bear the cost of a normal business loan amid the current economic uncertainty.

This is a major problem, and one that the Government has recognised. With the help of agencies like Enterprise Singapore (ESG), banks like OCBC are providing government-assisted loans to SMEs.

In this guide, we will dive into what these government-assisted loans are and how they can help businesses like yours get through financial challenges.

What is a government-assisted loan, and how do they work?

Government-assisted loans give SMEs greater access to cheaper financing. Interest rates on these loans are significantly lower as compared to a "standard" commercial loan, mainly due to two reasons:

  • The Government lowers the funding costs for banks and the cost savings are passed onto small businesses.
  • The Government is a "90% guarantor" on such loans and shoulders up to a 90% risk-share, so as to lower the risk for banks. This applies only until 31 March 2021.

The benefits for SMEs are clear - more financing at cheaper rates. However, bear in mind that a 90% risk-share does not mean that the borrower only has to repay 10% of the loan. The borrower is still responsible for 100% of the loan amount. Only as a last resort, and after all available options are exhausted, can the banks claim 90% of the loan amount from the Government, in the event of a loan default.

How to choose between the various OCBC government-assisted loans

There are six types of government-assisted loans offered by OCBC to suit different business needs. Each type of loan varies depending on the:

  • Purpose
  • Eligibility criteria
  • Maximum amount
  • Maximum tenure
  • Interest rates
  • Collateral requirements
  • Government risk-share percentage
  • Ancillary fees

These differences can make the selection process complicated, but rest assured, the following table simplifies the key components that you'll need to know.

Loan Type Loan Purpose Eligibility Criteria
Temporary Bridging Loan Helps alleviate cash flow needs for SMEs affected by the COVID-19 crisis.
  • Business is registered and physically present in Singapore.
  • Minimum 30% Singaporean or PR shareholding.
SME Working Capital Loan Helps SMEs bridge working capital gaps.
  • Incorporated in Singapore for a minimum of two years.
  • Minimum 30% Singaporean or PR shareholding.
  • Maximum annual revenue of S$100m or employment size of 200 people.
Business First Loan Helps newer SMEs and start-ups scale their business.
  • Incorporated in Singapore for a duration between six months to two years.
  • Minimum 30% Singaporean or PR shareholding.
  • Maximum annual revenue of S$1m or employment size of 10 people.
Business Venture Loan Helps scale innovative, high-growth businesses.
  • Incorporated in Singapore for a minimum of two years.
  • Minimum 30% Singaporean or PR shareholding.
  • Maximum annual revenue of S$500m.
  • A clear path and track-record of business growth.
SME Overseas Loan Helps fund overseas operations such as fixed assets and working capital.
  • Incorporated in Singapore for a minimum of two years.
  • Minimum 30% Singaporean or PR shareholding.
Loan Insurance Scheme Helps secure short-term trade financing.
  • Incorporated in Singapore for a minimum of two years.
  • Minimum 30% Singaporean or PR shareholding.
  • Maximum annual revenue of S$100m or employment size of 200 people.

Which government-assisted loans best suit your business needs?

The loan purpose and eligibility criteria will probably narrow your options for a loan. You might be confused by the similarity of some loans, for example the Temporary Bridging Loan and the SME Working Capital Loan. Let us help clarify them.

Temporary Bridging Loan vs. SME Working Capital Loan

The main difference between these two government-assisted loans is accessibility. The Temporary Bridging Loan was specifically introduced in March 2020 as a response to the COVID-19 crisis, whereas the SME Working Capital Loan scheme had already existed prior but has since been enhanced in light of the situation.

At this point in time, the Temporary Bridging Loan is more accessible, with no company age requirements or revenue and size caps. It also has a higher maximum financing amount of S$5m and interest rates that are capped at 5% per annum.

The Temporary Bridging Loan suits SMEs that have been hard hit by the COVID-19 crisis. If additional financing is needed, you can also apply for the SME Working Capital Loan.

The SME Working Capital Loan suits businesses that have more or less weathered the storm but require more working capital financing.

Finance your business with OCBC's government-assisted loans

As a participating financial institution in ESG's financing schemes, OCBC stands ready to help SMEs, no matter the needs. Whether you are looking to weather the economic storm or boost your start-up business, we have a government-assisted loan that will suit your needs. Apply now with OCBC Business Banking.

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The information provided herein is intended for general circulation and/or discussion purposes only. Before making any decision, please seek independent advice from professional advisors. No representation or warranty whatsoever in respect of any information provided herein is given by OCBC Bank and it should not be relied upon as such. OCBC Bank does not undertake any obligation to update the information or to correct any inaccuracy that may become apparent at a later time. All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.