Why the Temporary Bridging Loan is the best loan for SMEs

Since its introduction as part of the Solidarity Budget 2020 on 6 April 2020 to combat the economic disruption brought by Covid-19, the temporary bridging loan Programme (TPLP) has continued to receive an onslaught of new applications from Singapore local SMEs.

Not withstanding that the pandemic has forced many businesses to seek for financial support, this is also because the TBLP is recognised as being one of the most lucrative and enticing loans from a business standpoint. In fact, the TBPL was initially meant to provide quick financial relief for SMEs, but in lieu of the overwhelming demand for the TBLP, the government has extended the application period numerous time, with the most recent extension up till 31 March 2022. Here are 3 strong reasons why you should consider applying, and if you already already applied, try to renegotiate for even more credit from the TBLP.

Lower interest rates (SIBOR)

For the longest time, the Singapore Interbank Offered Rate (SIBOR), which is the benchmark interest rate as which the banks will lend inter-banks lend money to, has dropped to near record low rates. In fact, the 1 Month SIBOR rate is at a low of 0.265% as at June 2021! This is just 26 basis points from being a zero percent interest rate loan. In fact, Singapore had only reached such a low interest rate at back in 2011, just slightly after the Great Recession.

What does this means for borrowers? It means that borrowers get to borrow capital at one of the cheapest interest rates in the past 10 years! Every business knows that acquiring the cheapest cost of capital will ultimately improve margins within the business. Hence, regardless of the business condition, as long as your business is eligible to borrow money, we recommend businesses to acquire capital as a strategic business tactic and also to shelter against further periods of business draught that Covid-19 might continue to bring.

TBLP Features

Apart from the interest being extremely low, the rest of the loan conditions are also extremely favourable to SMEs.
Below are the basic terms of the loan:

  • Up to $3,000,000 per borrower;
  • Maximum Loan Period of 5 Years (extendable 1 year subject to approval);
  • Risk Share Rate at 70% (down from 90%); and
  • Interest rate up to 5% per annum

Per every business, the loan conditions will vary based on the business financial conditions and standing. Standing to gain $3,000,000 in non-current liabilities with $3,000,000 upfront cash on hand (current assets) is an effective and strategic balance sheet play. In addition, the interest rate is up to 5% per annum – this was when the TBLP just started. However, the past one year has seen the SIBOR rate steadily decreasing, and the interest rate also varies for every company, so do discuss with your loan provider on the best interest rate that they can offer you.

Lastly, the risk share rate is another lucrative feature of the TBLP, which the government steps in to promise the banks that they will take on 70% of the loan risk in the event of defaults. This rate was initially at 90%, but has since reduce to 70% as at 1 April 2021. It is this feature of the TBLP that lets the financial providers grant more leeway with the loan applicants. For example, profitability of a business is an extremely important consideration for screening loan applicants. However, there have been cases where businesses can still attain the TBLP despite being unprofitable. Should there be another extension of the TBLP at 31 March 2022, you can be sure that the risk sharing rate might further decrease to even 50% and below, making the loan conditions stricter and less favourable to SMEs.

And if you are willing to got the extra mile in comparing the TBLP with other SME loans under the Enterprise Financing Schemes (EFS) or even the traditional bank loans, you will only gain conviction that the TBLP is a great deal.

Next Phrase of the Singapore and Covid-19

With the goal of attaining two-thirds of the population being fully vaccinated by national day 9 August, Singapore is looking to kickstart its economy, especially its tourism industry which has been neglected for the past 2 years. Singapore has mentioned that it plans to transit to an endemic society, meaning that the citizens will have to live with the Covid-19 strain and continue with their normal lives. Travel bubbles – where countries opt to open their borders to one another – are in the midst of discussion.

With all these uncertainties in the backdrop, its impossible to guess what’s going to happen. One thing is for certain, and that is as Sinagapore is preparing to transit and tackle the new problems that may arise, as so will the capital allocation. Therefore, businesses should not expect to receive ongoing assistance from the government and make use of any ongoing financial assistance packages available today.

Conclusion

In conclusion, the TBLP is a great financial option for businesses to tide through the current business draught, and the terms and conditions are extremely favourable. As a local SME, it is like your company’s birthright to apply for these loans and the least you are do it to consult your loan provider on the best deal that they can offer you. In fact, you may reach out to us too, and we will be more than happy to assist you in your loan eligibility and application process, or maybe even to clarify any doubts and questions.

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