E-Learning 2020 SEM 2

Finance for Small-and

Medium-size Entities
(SMEs)
▪ Major Sources of SMEs Finance
▪ Finance for SMEs in Singapore

by Chanika Charoenwong

Picture from https://www.freepik.com/premium-photo/young-plant-growing-hand-watering-garden_3890147.htm

Finance for Small and Medium-size
Entities (SMEs)
▪ Finance for SMEs refers to the funding of
small-and medium-sized enterprises
▪ Major sources of financing for SMEs are:
1. Internal funds such as owners’ savings,
company’s profit
2. Overdrafts and bank short term loans —
to fund working capital
3. Bank long term loan — to finance asset
purchasing, other business development
and investment purposes
Finance for Small and Medium-size
Entities (SMEs)
4. Leasing and hire purchase arrangements — to
purchase capital equipment such as plant,
machinery
5. Stock market equity and corporate bond
issues — to finance large and long term
projects or investments
6. Venture capital or private equity
▪ Venture capital (VC): financial capital provided to early-stage, high-potential,
start up companies.

▪ Private equity: financial capital from firms specializing in investing and

acquiring equity ownership
Finance for Small and Medium-size
Entities (SMEs)

7. Asset-based finance such as factoring and

invoice discounting — to finance short term
working capital
▪ Factoring: financial transaction in which a business sells
its accounts receivable (i.e., invoices) to a third party (called a
factor) at a discount.
▪ Invoices discounting: SMEs sell their outstanding invoices
individually or in bundles at a discount to the investors who
offer the most competitive price through an online market.
Finance for Small and Medium-size
Entities (SMEs)

8. Trade credit — for short term working capital

▪ Trade credit: delays in paying for purchases of goods and
services. Often provided by suppliers.

9. Crowdfunding — to fund a project or venture

by raising money from a large number of people, mainly through
dedicated online platforms.
Major Financing Sources for SMEs

▪ Earnings internally generated by the

businesses and/or supplied informally as
trade credit are the main source of
financing for SMEs.

▪ Commercial banks are

the main formal suppliers
of external finance to
small-and medium-sized
businesses

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 Major Financing Sources for SMEs

Most small business start-ups

are largely funded by their
owners out of their own
savings, money from families,
friends, or private investors, etc.

▪ While medium-sized public companies can

issue bond/stock in the stock market for
external finance, medium-sized private
companies tend to be highly reliant on banks
and/or private equity financiers.
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Which of the following is an important
issue faced by most SMEs?
1. High inventory
2. Lack of financial
resources
3. Lack of good
relationship among
staff
4. I don’t know
because I haven’t
set up a company
 Major Financing Sources for SMEs in
Singapore
▪ Small Medium Enterprises (SME) in Singapore are
defined as companies with at least 30% local
shareholding, group annual sales turnover of less than
SGD100 million or group employment size of not more
than 200 workers.
▪ SMEs account for nearly 99%* of the 216,900 business
in Singapore. They contribute to almost 60% of the
total value-added in the economy and employ seven
out of 10 of the country's workforce.
▪ Do you know? Singapore places 12th globally in overall
startup ecosystem rankings**

* SMB World Asia, Slow payments a key concern for Singapore’s SMEs, September 27, 2017.
** https://sbr.com.sg/economy/in-focus/singapore-trumps-silicon-valley-top-place-startup-talent
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Major Financing Sources for SMEs in
Singapore
▪ Major financing sources for SMEs in Singapore
▪ Other than those financing sources mentioned previously,
there are many government assisted financing schemes
for SMEs. Most of which are administered by Enterprise
Singapore.
▪ Government assistance
▪ Tax incentive such as Angel Investors Tax Deduction
(AITD)
▪ Grants such as Startup SG Founder, Startup SG Tech,
Enterprise Development Grant (EDG), Local Enterprise and
Association Development (LEAD) Programme
▪ For more detail on grants, please go to
https://www.enterprisesg.gov.sg/financial-assistance/grants 12-10
Major Financing Sources for SMEs in
Singapore
▪ Loans such as Govt-backed loans for working capital,
trade financing and equipment financing, offered
through participating financial institutions.
➢Enterprise Financing Scheme (EFS), Loan Insurance
Scheme(LIS ), Trade Credit Insurance Scheme (TCIS)
➢ For more detail, please go to
https://www.enterprisesg.gov.sg/financial-assistance/loans-
and-insurance
▪ Tax incentives such as Double Tax Deduction for
Internationalisation (DTDi), Fund Management Incentive
(FMI)
➢ For more detail, please go to
https://www.enterprisesg.gov.sg/financial-assistance/tax-
incentives
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Finance for SMEs in Singapore

▪ For more information about Singapore

Government assistance , including financial
assistance schemes, please visit
https://www.smecentre-sicci.sg/government-grants-
schemes/
https://govassist.gobusiness.gov.sg/

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References

▪ http://www.smecentre-sicci.sg/en/resources/government-grants-
schemes
▪ https://www.enterprisesg.gov.sg/sme-support/i-want-to-finance-
my-business
▪ Including web links provided in the slides
▪ https://achibiz.com/guides/business-guide/guide-types-of-firms-
entities/grants-for-small-medium-enterprises-sme/

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