Four in five SMEs in Singapore unable to secure adequate business funding

97% of Singaporean SMEs would consider switching lenders for improved offerings, with better digital services a big drawcard

More than four in five (86%) small and medium-sized enterprises (SMEs) in Singapore have been unable to secure sufficient, or any, funding on at least one or more occasion over the last five years, according to a new report from cloud banking platform Mambu.

The ‘Small business, big growth’ report surveyed over 1,000 SME owners globally, including Singaporean SME owners, who set up their company and applied for a business loan in the last five years.

39% of Singaporean SMEs had to rely on friends and family for loans, and 39% used personal funds to launch their business. Of the SMEs unable to secure sufficient funding, 43% went on to experience cash flow issues, 43% were unable to hire effectively, and 39% were unable to upgrade or improve technology.

Mambu’s findings come amid a rise in alternative lending, as SMEs turn to challenger banks and fintechs to overcome common barriers. The opportunity for new entrants is clear as the vast majority (97%) of Singaporean SMEs say they are open to changing lenders for a better lending experience.

Better digital services would entice 47% of Singaporean SMEs to switch lenders, while 43% would switch for better borrowing benefits and incentives, and 40% would change for better in-store services.

Myles Bertrand, Managing Director APAC at Mambu, said: “Small and medium-sized enterprises have an enormous impact on the Singaporean economy, employing 70% of the workforce and accounting for 43% of the GDP.  However, 86% of SMEs in Singapore have struggled to obtain the business funding that they’ve needed over the last five years. This has enormous implications for the SME sector, with businesses unable to hire the people they need or update equipment to keep their business profitable. And with SMEs so integral to our economy, that also has serious implications for Singapore’s economic success.”

William Dale, Commercial Director at Mambu, added: “Business loan applications have traditionally been complex, arduous, and time-intensive to complete, which puts time-poor SMEs on the back foot from the beginning. If lenders proactively digitise their services and embrace new technologies like AI, machine learning and data analytics, they can offer SMEs much faster loan applications and processing, while still maintaining appropriate credit risk assessments. In fact, traditional manual loan application processing has a high risk of human error, so digitising this process can actually improve accuracy and decrease risk for the lender.”

Financial institutions must do more to tackle challenging application processes for loans. The research found that the length it takes to apply for a loan is a major influence on small businesses when choosing a lender.

When it comes to improving the application process, 86% of Singaporean SMEs are interested in automatic credit review and collection, 81% want to see faster loan decision processing, and 80% are interested in low or no collateral requirements.

Richard Lim, CEO of Retail Economics, said: “The pandemic has ushered in enormous changes in how we work, play and shop, accelerating the democratisation of digital and with its repercussions still reverberating across society. But access to capital is an area where digitisation has matured at a much slower place. All too often, businesses looking to scale quickly and seize opportunities are choked by exhausting application processes. Stifled by slow and inefficient practices, current lending practices are no longer fit-for-purpose in today’s fast-paced, digital world.”

Globally, the most common barriers to securing funding among SMEs are not enough starting capital (30%), too much paperwork and admin in the lending process (28%) and cash flow not being considered strong enough (27%).