Start-ups, small firms unsure of funding options: Survey

Many start-ups and small businesses may be hampering their growth potential because they do not understand all their funding options.

The findings from a new survey highlight the problems that smaller companies encounter when it comes to raising capital as many may not have the consistent cash flow to qualify for traditional bank loans.

Expansion for such firms will be a tall order if they cannot access funds or do not know what options they might have, according to the survey by United Overseas Bank (UOB), which polled 250 Singapore-based companies with an annual turnover of under $30 million.

Sixty-five per cent of respondents said they did not know where to obtain advice on the range of funding options open to them, including venture capital, venture debt and debt and equity crowdfunding.

This unfamiliarity means most companies tend to rely on tried and tested methods, with 43 per cent saying they raised their own working capital while 40 per cent looked to government-assisted schemes such as Spring's local enterprising financing for business expansion.

The survey also found that companies were not familiar with the distinctive features of each type of alternative funding.

For instance, 25 per cent thought there was no interest payable on crowdsourced funds. This is incorrect; such funds do attract interest.

Mr Mervyn Koh, UOB's managing director and head of business banking in Singapore, said: "Additional funding is a lifeline for start-ups and small businesses that often face the challenge of tight cash flow.

"However, we find that most of the time, they need more education on what these options are and how they can be used for their business."

He urged companies to go to government bodies, accelerators and venture capital firms to better understand their financing options.

Financial institutions like UOB also provide information and mentorship on funding options.

"With a clear understanding of the various funding options available, they could realise their growth potential more quickly," said Mr Koh.

A version of this article appeared in the print edition of The Straits Times on November 11, 2016, with the headline 'Start-ups, small firms unsure of funding options: Survey'. Subscribe