From paying suppliers on time to easing cash flow pressure: How SMEs can widen their access to funds

With monetary conditions tightening globally, small- and medium-sized enterprises (SMEs) in Singapore may find it harder to secure a bank loan. This is especially so for SMEs.

In particular, those new to business loans and have little to no credit history may find it difficult to meet the eligibility criteria for a bank loan or face longer approval timelines. But digital technologies have broadened the range of financing options available to SMEs. Such alternatives help businesses to alleviate pressure on cash flow and widen their access to funds needed to grow their operations. "SMEs who consider business financing, be it short or long term, are the ones who are progressive and planning ahead to grow their businesses," says Renee Pak, Head of Sales at digital lender Funding Societies Singapore. "Whilst there are instances where SMEs still face challenges in accessing funds from traditional financial institutions, digital financing platforms like Funding Societies can offer flexible solutions as a result of understanding our SMEs' business models and needs to support them in their growth," she adds.

Balancing business needs

One major challenge SMEs face is balancing the need to ensure prompt payment from customers and paying suppliers for new inventory. When customers are late with their payments, SMEs often have to tap into their existing cash flow, meant for purposes such as employees' salaries, to pay their suppliers. Aiming to address this problem, Funding Societies launched Accounts Payable (AP) Financing in June 2022 to allow SMEs to pay their suppliers on credit. This takes away the pressure of dealing with overdue payments from customers.

AP Financing comes with a credit limit of up to S$500,000, so SMEs can use it for large purchases from both local and overseas suppliers. SMEs submit their Purchase Order invoice to Funding Societies, which will pay the supplier directly, often within three days. The SMEs then have up to 90 days to repay the financier.

Utilising credit helps SMEs to unlock more working capital to their businesses; while the ability to make payments on time allows companies to maintain good relationships with suppliers, raising their negotiating power in future transactions.

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An example of an SME that would benefit from the financing solution is an interior design firm. Such a firm receives payments from its clients in tranches, but this makes cash flow tight and limits the company's ability to buy additional materials needed to take on more projects concurrently.

With AP Financing, the interior design firm can buy the additional materials on credit instead of using its existing funds meant to pay salaries and other fixed costs. By taking on more projects, the firm can expand its operations and revenue.

Since launching AP Financing in June 2022, Funding Societies have disbursed over S$10 million to SMEs in Singapore. A majority of companies that have used the product come from sectors such as wholesale trade, general contractors and systems installation.

There are similar products offered by banks and other digital lenders. But Funding Societies says they can cater a 100 per cent loan-to-value ratio of the invoice amount. Application and approval process for AP Financing is also quicker and can be mostly fulfilled in three weeks, says Funding Societies.

"Digital financing platforms like Funding Societies, using technology, typically goes through a quicker process allowing SMEs to access the funds needed from application to approval to disbursement. Leveraging on data to assess the creditworthiness of the SMEs applying for financing, this has reduced the paperwork needed which used to be a huge pain point in the loan application process," says Pak.

Closing the SME financing gap

Singapore has a highly banked population, but studies have shown that SMEs are underserved by the country's banking sector.

SMEs make up around 99 per cent of all companies in Singapore, employ two-thirds of the workforce and contribute close to half of the economy's gross value added. But the share of total bank credit to SMEs was "disproportionately low" at 13.4 per cent in 2017, researchers from the Singapore Management University said in a 2021 report.

Funding Societies wants to change that landscape for SMEs in Singapore and beyond.

"Many SMEs who turn to digital financing platforms are usually new to business loans, looking for top-up financing. These businesses also often require financing fast and/or flexible forms of financing. In such instances, traditional financial institutions typically have a strict eligibility for SMEs and MNCs, and require a longer lead time of up to two months," says Pak.

"Thus, this is where platforms like us play an integral role in serving this gap to help our SMEs gain not only the funds they need, but also build their track record for future financing," she adds.

Founded in 2015 by two Harvard Business School classmates Kelvin Teo and Reynold Wijaya, Funding Societies has grown into one of the largest digital financing platforms in Southeast Asia.

In February 2022, the company raised its Series C+ of US$144 million in equity led by SoftBank Vision Fund 2 and is backed by the likes of Sequoia Capital India, SMBC Bank, EDBI, SGInnovative, Qualgro, Golden Gate Ventures and more. To date, it has disbursed close to S$4 billion in business financing across over 5.1 million transactions processed.

"SMEs continue to be the backbone of Singapore's economy. Through the years, we've seen an increase in SMEs willing to adopt more digital financial services which was further accelerated by the pandemic, coupled with proactive regulation from the government in this space, creating more credibility," says Pak.

"This has allowed Funding Societies to continue serving SMEs not only in Singapore, but also across Southeast Asia including Indonesia, Malaysia, Thailand and Vietnam. As we continue helping SMEs to bridge that financing gap, we look for new opportunities to support them in other areas to bring a unified digital finance experience so that they may grow and eventually build a stronger competitive edge internationally."

Get your purchases to your supplier paid by signing up for Funding Societies' Accounts Payable Financing here. For more information, please visit this website.

Accounts Payable Financing is fulfilled by FS Capital Pte. Ltd., an entity under Funding Societies brand.