Finding It Hard to Grow?
Singapore entrepreneurs should look beyond the usual sources of financing to thrive in today’s competitive world.
Author: Lim Chu Chong, Regional Head, DBS SME Banking
For over a decade now, the Government has made a concerted push to foster a culture of entrepreneurship here, with the aim of grooming a core of homegrown enterprises that can go on to be regional or global champions. As the Singapore economy undergoes a period of adjustment, renewed focus has been placed on the role of local businesses in driving the next phase of our growth.
This effort has yielded results on many fronts, whether in the form of more frenetic start-up activity on the ground, or the high-profile acquisitions of local tech companies. Despite these successes, many SME owners are struggling to grow their businesses amid a tough operating environment.
One perennial bugbear for SMEs is the transition to their next stage of development. Perhaps recognising this dilemma, the Government in this year's Budget unveiled a new set of measures to further boost its already generous support for Singapore's SME sector.
Among the new initiatives announced in this year’s budget include the extension of more grant schemes, the topping up of the National Research Fund to help companies develop and commercialise new products and more support for SMEs looking to spread their wings abroad.
The Government also unveiled a new $500 milllion venture debt risk-sharing programme to provide 50 per cent risk-sharing to selected financial institutions which offer such loans. The aim is to catalyse the growth of start-ups which may otherwise wither from not being able to qualify for the usual loans available.
Yet, based on discussions with our SME clients, the feeling is that more needs to be done in the area of growth financing. Some felt that there could be a higher quantum in the government-assisted loans, some were disappointed that a Government-backed bridging loan that could help them transit into the next stage of their development was not introduced in the latest Budget. Others had hoped for a government-assisted working capital loan that would support their cash flow needs during their expansion phase.
As a result, the SMEs we spoke to were generally neutral towards this year's Budget. Relief measures that were unveiled, like the deferment of an increase in the foreign worker levy, felt to them like only a temporary reprieve.
The need for more targeted sources of financing has become even more pertinent in light of a still uncertain economic environment, rising operating costs and a persistently tight labour market in Singapore.
Looking Beyond The Obvious
With the challenging business environment in mind, we urge local SMEs to explore beyond the usual financing options. In particular, financial institutions like DBS have a range of financing solutions focused on helping SMEs grow that many may not be aware of.
Ranging from working capital and venture debt financing to raising funds through the capital markets, these can complement government funding and equity financing and help SMEs and start-ups through their critical growth phases.
For instance, recent studies around working capital have indicated that there is over US$1 trillion of cash “trapped” in existing sub-optimal working capital practices in Asia. Our working capital advisory team have helped our SME customers unlock some of this cash to lower funding cost to support further expansion.
We are also proud to be the first and only bank in Singapore to offer solutions tailored for social enterprises. Aside from giving social enterprises preferential rates, fee waivers, financing and grants, we also value add by matching making them with suitable incubators and accelerators to facilitate the flow of smart money.
Earlier this year, we also introduced a first of its kind venture debt that seeks to help tech start-ups navigate their next stage of growth, working together very closely with our partner venture capitalists. It is important for the private sector to not just deliver a comprehensive product and service suite, but also add value to the entire entrepreneurial ecosystem through expert advisory, connections and helping SMEs discover solutions beyond the obvious.
Playing the Long Game
Even with sufficient and the right types of funding in place, SMEs must keep in mind that it is the robustness of their business models that will ultimately determine whether they fail or succeed. The ability to adapt in the face of multiple business challenges are a fast-changing environment must be the long-term goal, even as financing helps to facilitate growth.
Thankfully, it appears that local entrepreneurs are starting to realise the importance of this dynamic. The DP Information survey showed that SMEs have embraced the need to restructure, with just over half saying their main strategy going forward is to rethink their business model. An increasing number of businesses surveyed are also seeking to improve productivity through technology and innovation.
To help in this area, DBS will be rolling out a series of events that will bring together a host of disruptive technologies from all around the world to inspire traditional businesses in Singapore. Named [email protected], the Food & Beverage sector will be the series’ first industry to disrupt, We will bring in innovations from robotics and drones to 3D food printing, that will help industry players boost their efficiency and inspire new thinking in business models.
All these are encouraging developments for the SME sector in Singapore, and together with the support from the government and the public sectors, can ultimately lead to a more vibrant entrepreneurial scene here.
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