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SMEs and fintech are a good mix, and here are 3 financing gaps being addressed today

10 - 08 - 2018 | Vikas Jain | e27

At the 2018 Echelon Asian Summit, Kelvin Teo, CEO and Co-Founder of Funding Societies spoke at a panel discussion and also at a fireside chat on the impact FinTech is bringing to the SME landscape.

Specifically, the gap within SME financing landscape has been a widely discussed topic in Southeast Asia, and with the rise of the FinTech, more alternative lenders are trying to fill the US$120 Billion financing gap in Southeast Asia through digital lending platforms. At Funding Societies, we conducted an extensive research and spoke to our business borrowers in Singapore, and identified 3 key reasons SMEs struggle in financing their businesses:

1. SMEs are not getting paid on time

Any delay in receiving payments increases the risk of negative cash flow and compounds the working capital problems, that could set SMEs back in their growth path. The results were corroborated by the SME Development Survey in 2017 (conducted by DP Information Group) wherein 81% of SMEs surveyed in 2017 experienced delays in payments, up from just 17% in 2016.

On an average, the Days Sales Outstanding (DSO) for Singapore B2B invoices were at 46 days DSO, higher than the regional average of 41 days DSO.

2. Younger SMEs get less support from the big boys

Smaller SMEs face higher rejection in bank loan applications, compared to their larger counterparts. Most SMEs that approach Funding Societies for financing do not get enough support, if any, from traditional financial institutions due to lack of collateral, operational history or strong financial statements.

Other SMEs that have received loans from Funding Societies find bank loan processing time to be too long, or the approved value insufficient to meet their immediate financing needs.

3. SMEs don’t know their financing options

Singapore’s Institute of Policy Studies conducted a study and found that a lack of understanding in trade financing – both traditional and non-traditional forms – as well as knowledge of financing options contributed to 68% of companies not seeking alternative forms of financing when they were rejected by financial institutions.

How Funding Societies addresses SMEs’ financing woes

At the Echelon Asian Summit, Kelvin explained the driving force for Funding Societies, “We want to generate impact in Southeast Asia by funding promising societies (SMEs).”

As a Fintech startup, Funding Societies utilises technology and data to automate and increase the flexibility in business loan underwriting. Loans offered to SMEs cater to their needs at that point in time. End-to-end process from applying to receiving cash is also shortened to 4-5 days and for the mobile app based product, Bolt, its usually less than 24 hours.

Financing products are ever-growing and evolving to suit the SMEs’ needs and customising to each market that the Fintech companies serve. For example, SMEs can now receive advance cash of up to 120 days for invoices of 30-day term, from Funding Societies, if they can prove the aging history with their clients. This is unique product structure that very few invoice funding platforms provide.

A note to SMEs: Consider fintech solutions

Singapore is fast developing as a global FinTech hub, given its thriving environment and mature financial industry. Peer-to-peer lending, for example, has been growing exponentially in a well-regulated space locally.

Compared to 5 years ago, SMEs in Singapore now have access to innovative financing solutions offered by FinTech players. Funding Societies alone has supported SMEs with more almost S$200 million in crowdfunded loans across Singapore, Indonesia and Malaysia.

It’s important for businesses to know their financing options. While the awareness is still low amongst local SMEs, it is Funding Societies’ endeavour, together with many other B2B FinTech incumbents, to educate, enable and empower SMEs towards its mission and belief of Stronger SMEs, Stronger Societies.

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