In Singapore, small and medium-sized enterprises (SMEs) are struggling to obtain sufficient financing from traditional lenders, with most still relying heavily on their personal networks to support their business, according to the results of a new study. from cloud banking startup Mambu.

Small business, big growth report is based on the results of a survey of more than 1,000 small business owners worldwide who started their business and applied for a business loan in the past five years.

The study, which sought to understand the most pressing challenges facing SMEs, found that SMEs in Singapore face an uphill struggle when it comes to securing finance.

Over the past five years, 86% of Singaporean SMEs surveyed said they had been unable to secure sufficient finance or funding to cover their business needs, on at least one occasion, citing poor cash flow (36% ), high collateral requirements (34%), arduous application process (29%), rigid loan criteria (29%) and rejection due to lack of business plan (29%), as their biggest barriers to funding.

Instead, small business owners are turning to friends and family to help launch and sustain their business. In Singapore, funds from friends and family (39%) as well as personal funds (39%) were found to be the main sources of funding, followed by funding from business partners (34%). Only 29% of respondents indicated that they had successfully obtained financing from a traditional bank or building society.

Although they play a major role in most economies, SMEs and micro-enterprises have traditionally been ignored by big banks due to lack of credit data and perceived risk.

The International Finance Corporation (IFC) estimates that 65 million enterprises, or 40% of formal micro, small and medium-sized enterprises (MSMEs) in developing countries, have an unmet financing need of US$5.2 trillion each year, equivalent to 1 .4 times the current level of global MSME lending. East Asia and the Pacific accounts for the largest share (46%) of the total global MSME financing gap.

The rise of alternative lenders

To address the unmet financing needs of SMEs, alternative lenders and new fintech players have entered the market over the past two years, leveraging data and technological advances to create new valuation methods. credit and close the gap.

In Southeast Asia, finance companies operates one of the largest digital finance and SME debt investment platforms in the region, registering over S$3.37 billion in funded loans in Singapore, Indonesia, Malaysia and Thailand. Funding Societies specializes in short-term financing for SMEs, funded by individuals and institutional investors.

Validus is another leading Singaporean digital lender, providing an SME finance platform for small businesses and accredited investors. Using data analytics, artificial intelligence (AI) and machine learning (ML), Validus focuses on underserved SMEs in Indonesia, Thailand and Vietnam, and financed S$2 billion in loans to date.

In Indonesia, the SME finance platform KoinWorks helps e-commerce sellers, social commerce sellers and freelancers start and grow their businesses. The startup offers them a variety of products allowing them to access loans and increase their productivity, including neo-banking services for incorporated SMEs, working capital, factoring, early access to salaries (EWA) and fund management. KoinWorks claims 1.5 million customers.

Data from the Cambridge Center for Alternative Finance (CCAF) To display that the SME alternative finance industry has maintained its momentum in recent years, despite a significant decline between 2017 and 2018 due to the crackdown on the alternative finance sector in China.

Alternative finance volumes attributed to corporate fundraising, 2015-2020 USD, Source: 2nd Global Alternative Finance Market Benchmarking Report, Cambridge Center for Alternative Finance

These new players are putting increasing pressure on incumbents who are struggling to keep up with changing customer behaviors and expectations for speed, efficiency and digital experience.

Almost all SMEs surveyed on my Mambu in Singapore (97%) said they would consider switching lenders if a competitor offered a better or improved offer. Among the top three reasons for switching lenders, Singaporean SMEs cited better digital services (47%), better borrowing benefits and incentives (43%) and better in-store services (40%).

In the application process, Singaporean SMEs said they were more interested in automatic credit review and collection (86%), faster processing of loan decisions (81%), offers and services tailored (80%), more flexible loan terms (80%), and low or no collateral requirements for loans (80%).

Read the full report Small Business, Big Growth here:


Featured image credit: edited from Unsplah

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