Tech Solutions for SME Financing

Financing can be difficult for Small-Medium Enterprises (SMEs) in Singapore. The top finance-related challenge in 2017 cited by Spring Singapore was managing delays in customers’ payments. Still, many SMEs have revealed their reluctance to turn to external financing, and indicated sufficient funds to operate.

There are three salient points to take away for financing solutions for SMEs.

1. Online Debt Financing

Some SMEs may be unprepared or ineligible to actually borrow from more established financial institutions, due to the fund size, or credit worthiness, amongst other reasons. Fortunately, there are platforms providing an online debt financing service between willing investors and promising businesses that can help these businesses thrive.

2. Online Invoice Financing (Factoring)

The SME Development (SMED) Survey revealed that delays with invoice payments has increased dramatically from 14% in 2016 to 81% in 2017. With online invoice financing (or factoring), Capital Match is one such company that eases cash flows for the SME by converting outstanding invoices due within 90 days into immediate cash. The SME will then be able to keep working capital afloat and better manage cash flows during the repayment period.

3. Leverage Line of Credit

The common thread that strings all SMEs is that small businesses typically do not need a large sum for the long term. Instead, SMEs demand greater accessibility to smaller amounts to cover the cost of revenue, rental expense, and pay salaries for instance. Companies generally underutilise their pre-approved line of credit as the said expenses are usually paid for via bank transfer, cash, or cheques. SMEs can better leverage on their assigned line of credit to extend their payables period by up to 55 days, thereby improving short-term cash flows significantly.

Above are three tech-related solutions that can eliminate, or at least reduce inefficiencies in cash flow management by SMEs, and is done primarily through automation of such processes. SMEs must weigh the pros and cons of the time-money tradeoff and be transparent while reducing reliance on external financing, to focus on what is truly important – the growth of the business.

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Top 3 Challenges of P2P Funding Platforms in Singapore

Dealflow, scalability, and trust – a P2P crowdfunding startup is a 3 legged stool, without one of these, it risks a collapse. P2P crowdfunding has been a relatively recent phenomenon in Singapore, with the first platforms that are still operational having started in 2014/2015.

1. Dealflow – Gaining traction and proving the concept
Lining up a decent quality dealflow and attracting companies that are stable will be the main challenge that the platforms face. Two things are required for this, first, the interest rates of between 10% – 40% annualised need to decrease to become competitive with those of established financiers. Those rates are good to compensate yield hungry investors for the risk, but are difficult to sell to companies with a stable outlook that might be able to access bank financing at a lower interest rate.
Second, platforms need to increase the organic inbound leads and automate the onboarding of new clients. Hence, the challenge is to compensate investors adequately for riskier loans, while making the interest rate attractive enough for SMEs to see P2P Funders as a strong long-term partner, and to decrease the customer acquisition cost.

2. Scalability: Making the business viable in the long run
Once a platform has been able to implement the right processes, scalability is critical for the long term viability and also mostshareholders.

3. Trust: Ensuring stable operations
Lastly, Fintech is ultimately about offering a financial service and therefore, trust is paramount. Many Fintech companies are still young and have not established a track record. Becoming a player in the P2P Financing sector requires staying power and a sufficient amount of capital.

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