Businesses need cash to survive and grow.
In the initial stages, an enterprise eats up cash at a rapid pace without generating any returns. It is essential that during this period a firm should have an adequate financial cushion so that it can survive till it starts generating revenue.
But even when a company’s operations stabilise and the business is doing well, requirements for funds arise regularly.
Many lines of business are seasonal and unless enough funding is available at the right time, there is a danger of losing out on a substantial portion of the business for the year.
If a company in the retail industry does not have adequate stocks for the festive season it will sacrifice a large portion of its yearly profits.
Similarly, a manufacturing business may get a large order and need to buy new machinery. If it cannot arrange funds it could miss out on an opportunity that may not arise in the near future.
Although there are a number of sources a company can turn to when its funds get depleted, some of the important ones are:
This is an ideal source of finance for those businesses that plan well in advance for their requirement of funds.
Banks usually have a detailed paper-based application procedure and take several weeks to process an application.
An important advantage in bank financing is that the rate of interest is reasonable.
But there are several negative aspects to this source. Most banks would not consider new companies or even those with less than two years of operations.
The approval process is lengthy and a prospective borrow would be required to comply with repeated requests for data.
Borrowers would be required to submit the Income Tax Notice of Assessment for the company’s directors for at least the last two years.
Additionally, copies of the business’s bank statements for the last six months would need to be furnished. Each applicant and guarantor would also need to provide copies of their National Registration Identity Card.
Banks would also need full details of the facilities that the applicant enjoys with other financial institutions.
The information to be furnished would include the type of facility, interest rate, monthly instalment amount, outstanding amount and particulars of security provided.
Even after furnishing all this data and replying to the queries raised, there is a likelihood of being refused finance as banks are conservative in their outlook.
There are several new companies that specialise in matching borrowers and lenders by using proprietary technology platforms. These new alternative lenders can be a good option for businesses seeking funds.
SeedIn is Singapore’s most popular and fastest growing business financing platform.
The popularity of such technology-driven companies has grown as they provide institutions and high net worth individuals an opportunity to earn a good return on their investments.
These investors prefer not to invest in bank deposits as the interest rates are low.
At the same time, there are large numbers of private companies that require funds but are turned away by banks.
Alternative lenders, also known as fintechs, provide borrowers with an opportunity to get a loan from a source outside the traditional banking system.
In these transactions, the lender is usually an institution or individual seeking a better return on his money than can be provided by a bank deposit.
In many instances, a business which seeks funds through an alternative lending platform cannot get a traditional bank loan.
There are also times when a borrower requires funds urgently to take advantage of a new opportunity but cannot wait for the bank to complete its lengthy approval process.
Over the last few years, alternative lending has become popular with borrowers due to the speed at which these platforms can make funds available. Investors are willing to advance money through these platforms as they are very transparent and present information about borrowers in a clear manner.
Lenders can match the return they are targeting with the risk profile of the borrower before they decide to advance money.
Crowdfunding, a variation of alternative lending, is also an attractive source of finance for companies seeking loans.
Here, instead of there being a single lender there are multiple lenders who opt to finance a business after satisfying themselves that it is creditworthy.
This source of finance is usually used by new ventures or existing businesses who are going in for an expansion.
It entails giving up partial control of the business and should be considered by a company only if the owners are willing to accept this condition.
The venture capital industry is very active in Singapore with a number of prominent players.
Most of these firms specialise in a specific area and are able to add value to the companies that they invest in by providing management inputs and advice.
A few of the well-known venture capital firms operating in Singapore are:
Digital Media Partners: concentrating on emerging digital markets and the consumer internet
Hera Capital Ventures: specializes in consumer, media, retail and technology companies
Digital Media partners had invested in AdzCentral, a company providing clients with automated digital ads buying for social, mobile and email ads.
Subsequently AdzCentral merged with two other ad technology firms to form CtrlShift, one of the largest independent Asian companies in this line.
A successful venture capital investment can take a company to the next level and make its owners very rich.
While venture capital can often be the only source of finance available to a business wanting to expand, companies should use this option carefully.
The venture capital firm may want to place their own managers in the business to handle the day-to-day running.
This is one area of funding that many businesses tend to ignore. Government grants are useful because not only do they help you conserve your cash, they are for purposes that help to enhance your company’s prospects.
Singapore is famous the world over for being one of the most business-friendly locations. The World Bank ranks Singapore as #1 in its Ease of Doing Business Survey. One of the reasons for this ranking is the availability of government grants.
Companies operating and registered in Singapore can take advantage of the Capability Development Grant, which bears up to 70% of the expense of building a website.
Small and medium enterprises can send their employees for training under the Enhanced Training Support scheme.
Currently, more than 8,000 courses fall under this scheme. Eligible companies need to pay as little as 10% of the cost of the training program.
In addition to these, there are a number of other government grants for companies operating in specific sectors.
Which Is The Best Option?
While there are a number of options available for obtaining funds, the one you choose will depend upon your exact requirement.
The first choice should be a government grant as it will save you a large amount of money. But you will need to see if one is available to meet your needs.
Companies that need cash in a hurry cannot consider banks as a source of funds as they have a time-consuming procedure to approve a loan.
For a majority of businesses the option offered by alternative lenders is the most suitable as the process is quick and requires a minimum of documentation.
It is for this reason that an increasing number of companies seeking funds are turning to alternative lenders.