Singapore EDB Loans: Government Supports Small Businesses

Posted on November 2, 2009
Filed Under business loans | Leave a Comment

The year 08 and during the 1st quarter of 09 saw the global economy facing an almost unprecedented worldwide recession.

Asia and Singapore got impacted directly from the spill over effects by the double whammyof credit crunch and global recession.

Faced with the worst recession in Singapore’s history, the Government had to come up with a plan to keep our well-oiled economy in good shape. The Finance Ministry Singapore Finance ministryBudget for Financial year[spin]09 unveiled a record $20.5 billion ‘resilience package’ that required [spin]presidential assentto be delivered in full under the Spring Singapore loans. There are many economic initiatives, but banks are not lending. So Spring Singapore had to introduce major programs to increase money flow and increase lending.

The most eye-catching tweaks done to the existing Bridging and Micro loan was to increase government risk sharing from 50% to 80%-90%. If the banks have less risk, maybe they will lend to small businesses.The maximum loan quantum was also increased from $500,000 to $5 million. Most banks will spread their risks over many companies. With the increased loan quantum, companies can apply through more than 1 bank for the Bridging Loan programme.

We are not sure if many SMEs applaud the above moves as in an adverse downturn, unsecured loans amounting to cold hard cash was what small businesses need to survive and remain viable. Most companies would not seek to expand with weakening demand, therefore machinery loans & complex trade facilities are not as seeked after as a simple unsecured term loan. This form of financing would provide working capital and transactional buffer and is a vital lifeline for small businesses to survive the recession.

The bridging loan and micro loan initiative by Spring Singapore was launched, with the government bodypumping in $2.3 billion to aid funding.

There is no certainty as yet whether if Spring would continue the government assisted funding once the $2.3 billion has been fully drawn down. There remains the possibility that the program might be discontinued when there are visible signs of the economy picking up. The program was introduced in the face of the global economic downturn in the first place. If and when the loan program is eventually discontinued, Singapore business loans might freeze again and might have to revert back to traditional unsecured bank loans and facilities again.

The biggest differencebetween commercial unsecured business loans and the Bridging/Micro loans would be the interest rates charged. Spring, Spring as a government body, aims to lower the cost of borrowing for businessesas part of the stimulus package to address the SME businesses financing needs, inject liquidity and save jobs (SMEs hire almost half of Singapore’s workforce)

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