SBF-led SME Committee (SMEC) push for new financing channels for SMEs in Budget 2014 recommendations
- SMEC highlights growing potential for crowdfunding and trade receivables exchange as alternative forms of financing for SMEs and start-ups
- Recommends that Government reviews financial regulations and legislation to facilitate these new forms of financing
14 January 2014 [Singapore] – In its recommendations for Budget 2014 released on 14 January 2014, the Singapore Business Federation’s SME Committee (SMEC) proposed that the Government take a more proactive approach to help SMEs regain their appetite for growth through innovation, internationalisation and access to financing. In the face of tighter lending practices from traditional sources of financing, SMEC highlighted the growing potential for crowd funding and trade receivables exchange as new forms for financing SMEs and start-ups.
Crowdfunding – Crowdfunding is a recent popular funding method where individuals pool their money to fund personal projects or business start-ups. Amongst the four main types of crowdfunding, donation and reward-based crowdfunding have been popularly used with many platforms available both worldwide and locally. Equity and debt crowdfunding, however, have been less prevalent due to regulations but could provide a more viable alternative for start-ups and SMEs to raise capital.
Trade receivables exchange (TRE) – A TRE provides a platform for businesses to auction their accounts receivables to potential investors, thereby converting an unutilised asset on the balance sheets into useful working capital. A TRE would be useful for SMEs whose buyers’ debt is not investment grade that would qualify them to obtain factoring from banks. SMEs would benefit from the lower cost of capital and increased liquidity. A TRE can also serve as an alternative channel for Government to co-invest directly in SMEs.
“Crowdfunding is not a new concept but has become more fashionable today because of the means of offering through the internet. It is a potentially viable alternative source of financing for young businesses and is especially relevant given the higher operating costs they face today. If the usual sources of initial funding from savings and borrowings from friends and family are not adequate, SMEs can use crowdfunding to tap into financing from other investors”, said Mr Linus Goh, SMEC Subcommittee Chairman on Financing.
TRE offers an easier alternative for businesses that have a receivable – such as an invoice – to sell it to somebody and get value rather than going only to banks or finance companies. Through TREs SMEs could capitalise on receivables and get value for them.
In response to their viability of adoption for SMEs in Singapore, Mr Goh said, “Clearly, crowdfunding and TRE are not intended for everyone. While it is still early to say whether or not this will work, SMEC’s proposal is for an avenue to be created so that these alternative forms of financing may be explored and the risks associated with them addressed. For the protection of investors, people need to know what they are getting into and there are certain things that need to be done to make that right.”