Small, fast-growing firms often lack the cash flow and collateral needed to gain access to bank financing, but a new scheme aims to plug that gap.
Enterprise development agency Spring Singapore is partnering the three local banks to catalyse 100 loans amounting to about $500 million over two years, under a scheme called the Venture Debt Programme.
The scheme allows small and medium-sized enterprises (SMEs) to apply for loans of up to $5 million each, to fund working capital, asset purchases, research and development or business expansion.
Spring Singapore, which unveiled details of the programme yesterday, will share 50 per cent of the risk with the banks.
Venture debt is a type of alternative financing for enterprises that have high growth potential but lack established revenue streams or assets to use as collateral.
To compensate for the higher risk involved in backing such companies, lenders might combine their loans with warrants, or rights to purchase equity in the firm.
The scheme, first announced in last year's Budget, was rolled out in January and has already benefited four companies.
One of them is Ascenz, a supplier of fuel monitoring and bunkering systems. The firm has developed a proprietary monitoring technology that provides shipping firms with real-time insights on fuel usage.
Chief executive Chia Yoong Hui said the company intends to make use of the $1 million it obtained under the Venture Debt Programme to invest in research and development, as well as expand in Europe.
"Most of our assets are intellectual property, which is intangible, so it's challenging for us to access most types of funding. This gives us an alternative," he said.
"It also benefits us in a practical way, in that (venture debt) doesn't dilute our equity stake in the company," added Mr Chia, who co- founded the company with chief technology officer Sia Teck Chong.
Minister for Trade and Industry (Industry) S. Iswaran, who spoke to the media during a visit to Ascenz yesterday, said the scheme will help accelerate the growth of firms using new business models and moving into new markets.
"(The programme will help) fuel the growth of start-ups and fast- growing companies, and also help financial institutions become more comfortable with understanding the risks involved," he added.
Mr Tan Chor Sen, the head of international, global commercial banking at Ascenz's bank, OCBC, said Spring's risk-sharing in the programme "allows us to take risks that we wouldn't usually have taken".
"The longer-term objective is to eventually have the private sector take over (in providing such financing) and have government support fall off. This would make for a more vibrant SME ecosystem," he added.
Mr Leslie Loh, the managing director of local venture capital firm Red Dot Ventures, said the programme will provide an alternative for firms which need funds but are not yet ready to raise sums in the $5 million to $10 million range from venture capital.
However, banks lending under the scheme might require company founders to put up a personal guarantee, which means founders will need to shoulder the entire risk in the event of potential default.
"This is not for everyone... Not all start-up founders would be willing to do that," he added.