A Guide to Using Government-Assisted Loans to Weather Economic Uncertainties
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 "70% guarantor" on such loans and shoulders up to a 70% risk-share, so as to lower the risk for banks. This applies only until 30 September 2021.
The benefits for SMEs are clear - more financing at cheaper rates. However, bear in mind that a 70% risk-share does not mean that the borrower only has to repay 30% 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 70% 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:
- 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.||
|SME Working Capital Loan||Helps SMEs bridge working capital gaps.||
|Business First Loan||Helps newer SMEs and start-ups scale their business.||
|Business Venture Loan||Helps scale innovative, high-growth businesses.||
|SME Overseas Loan||Helps fund overseas operations such as fixed assets and working capital.||
|Enterprise Financing Scheme - Trade Loan||Helps secure short-term trade financing.||
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$3m 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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