5 Ways a Loan can Boost Your Business in Singapore in 2020

There’s been tons of talk about how business in Singapore is booming, but how? Well, in the Global Innovation Index 2019 released by the World Intellectual Property Organization, Singapore ranks amongst the top ten countries in the list and the #1 country amongst South East Asia, East Asia, and Oceania.

Singapore is known as a pioneer in implementing the best practice of knowledge-intensive employment and has proved to be a world leader in strategic partnerships. Complimented with an enterprising mindset and flexible working capital for modern businesses, Singapore is one of the globally acclaimed countries, when it comes to setting up state-of-the-art facilities and continues to remain a prominent hub for business; attracting foreign investors and small-time businesses, alike.

 

 

Changing Trends

Amongst all these economic developments, a major revolution that has become the trend in Singapore is the rate at which Small and Medium Enterprises (SMEs) are growing. According to the Department of Statistics, in 2018, SMEs have added a 47% of nominal value (S$447 Bn); out of which 38% are locally owned enterprises.

Like every business leader, the idea is to continuously grow the business and strive for excellence. That said, dreams and ideas may require a substantial investment, the lack of which, may alter the pace of growth for an SME. That is where managing cash flows becomes important and a loan can come handy. Here are five ways in which SME loans can help boost your business in Singapore this year!

 

 

1. Investing in future expansion

Exploring new markets requires capital. Finding out a centralized location, investing in the infrastructure, licenses, hiring; a loan will help support your new venture until it is self- sustaining with sufficient return on investment.

 

 

2. Stability for existing initiatives

From maintaining a healthy cash flow to paying salaries on time, down to investing in the latest technologies–a loan helps you, as a small business owner, to plan better and in turn, deliver superior products and services to existing and potential customers. It’s important to remember that loans aren’t just for large-scale expansions–they’re vital in helping you consistently maintain and improve on your business processes!

 

 

3. Supplementing new short-term projects

For times when vendor payments need to be disbursed in advance from your pocket before you receive the same from your client, a loan will help ensure that the project is executed without any obstacles. One can also consider exploring the possibility of investing in new technology to diversify or augment your current offering.

 

 

4. Security for hard times

Possibly one of the most common uses of SME loans, many small business owners in Singapore are advised to take out loans to tide through the early stages of launching a business. This is to stay one step ahead of potential financial setbacks so as to avoid letting your hard-earned business shut down due to a lack of foresight. A loan is an investment as well as a guarantee for the future.

 

 

5. Brand building and visibility

Marketing, as well as media campaigns, demand significant capital investments. And while many businesses have an allocated budget set aside for their marketing efforts, a short-term loan gives you the flexibility to make smarter and faster decisions, to reach a greater audience and create maximum impact, as and when the need arises.

 

 

What type of SME loans in Singapore Can I Choose?

There are two main types of popular loans that SMEs tend to opt for in Singapore:

 

 

SME Working Capital Loan

• To plan finances better every day.

• Funding capital for business operations.

• Maximum loan amount of S$300,000.

 

 

SME Fixed Assets Loan

• Security for fixed assets: Domestic as well as overseas.

• Funding for equipment purchase or upgrading and the purchase of business properties.

• Avail up to S$30 million.

 

 

Eligibility:

• Your business enterprise has to be registered and located in Singapore.

• Have at least 30% local equity held directly or indirectly by Singapore PR(s) and/or Singaporean(s).

• Have a group revenue of up to S$100 million or maximum employment of 200 employees.

 

 

Getting a business loan in Singapore is a hassle-free process!

According to an SME Development Survey released in 2018, finance-issues have been listed as the top-most roadblock that SMEs in Singapore have to face. But with the changing times, aid extended from the government and digital transformation listed as the theme of the year; a lot of SMEs have favourable things to convert 2020 into a year of milestones.

With the aim of increasing the quantum of locally-owned SMEs, our team at ETHOZ works to help SMEs obtain loans in Singapore. As a reputed financial institution, participating in the Enterprise Financing Scheme (EFS) administered by Enterprise Singapore, till date, ETHOZ has successfully provided personalized capital financing solutions to our clients, in Singapore and throughout South-East Asia as well.

To get more insight and advice onSME loans in Singapore from our team at ETHOZ, give us a call at +65 6654 7799 or drop us an email at contactus@ethozgroup.com today!

 

 

3 Simple Ways to Expand Your Business in Singapore in 2020

Despite the global economic slowdown that has affected our trade-dependent Singapore, the local economy averted a recession in 2019 and continues to demonstrate promising growth. Fortunately for businesses in Singapore, there are tons of support measures to increase productivity and upskill workers to prepare and strengthen our economy in the face of challenges. Thus, 2020 is the year for Small and Medium Enterprises (SMEs) in Singapore to grow and for businesses to start shifting their priorities!

There are countless ways to improve and expand your business this year. In this article, we’ll discuss 3 simple but transformative ways for your business to thrive in Singapore this year.

 

Start By Doing Your Checks

But before we start identifying new sources of revenue, we advise that you always carry out a thorough review of your business plan first! Ensure that your business is moving in the right direction of your vision, that your financial projections are reliable, and that your core products and services are well-defined. It’s also imperative that you understand how you match up to your competitors in the industry so that you can clearly envision how your plans in 2020 will put you ahead of the curve.

 

1. Increase Your Product/Service Mix

Before you can stay ahead in this competitive business scape, it’s most important to stay relevant. While there is a lot to be said about sticking to a specific product or service category and perfecting it, it’s important to see how the changes in the market affect overall demand.

Increasing your product/service inventory is one way of expanding your business without changing existing operations. For instance, think about recent trends that are happening in Singapore, and predict what kinds of products or services that people want. How much are they willing to pay for it, after accounting for your profit margin? The next step is to do your groundwork — such as testing out your products or services on a small group of people that highly resemble your target audience, and asking how much they would want to pay.

 

2. New Sales or Delivery Channel

Integrating digital technologies into your business’ systems and processes is an on-going and invaluable addition that can completely change the way your business works, and help you achieve a new level of efficiency!

In the aspect of business expansion, it means being able to reach out to new consumers directly via digital marketing — utilising advertising and search engine optimisation (SEO) tactics — and selling products on a digital storefront. Over time, actionable insights can be derived from data on these new consumer segments and can be gathered to guide the business strategy in the future. Supported by local legislation to help SMEs, technological integration should be practised by every company to reap the benefits of new sales and delivery channels.

 

3. Expand Your Market Reach

While starting small and focusing on Singapore’s market is a great stepping stone for many businesses, you can and should seek foreign market opportunities and even other niches that your business has not explored.

These new markets should exhibit strong demands for your product or service offered. However, expanding geographically and cross-industries can bring plenty of opportunities and pitfalls as well. To avoid costly blunders as much as possible, you should carry out a detailed analysis of the new market’s nuances, such as how the demographics might differ from that of Singapore’s. This is crucial as advertising techniques and how you reach out to consumers or businesses could also change.

 

Business Financing Considerations in Singapore

For those seeking to grow their business this year, planning ahead in advance to secure funds for your projects will save you from unnecessary headaches. Not only will you have the best terms from the lender, but also ample additional time to prevent any possible hiccups.

Especially for small businesses, gathering your finances can be one of the most challenging tasks. Thankfully, the Singapore government is very supportive of local incubators and funding schemes for SMEs. Under the Enterprise Financing Scheme (EFS) by Enterprise Singapore, we provide a range of financing schemes and loans for SMEs to purchase infrastructure, equipment, upgrades, and more.

This way, SMEs are able to obtain funds more easily when they need it during times of need — such as an increased customer demand or for Research & Development (R&D) purposes. No matter the growth stage of your business, there will always be a suitable business financing scheme to suit your needs. Find out more about our financing solutions or simply reach out to a member of our team at contactus@ethozgroup.com to explore the options available to you. If you like reading more of such content, head over to our blog to learn useful tips and case studies that can help your business!

 

 

Traditional Banks vs. Digital Banks: Which is better?

In the last decade, we have seen the migration of an increasing number of businesses onto digital platforms, as traditional industries are being disrupted. Amongst the latest to be gripped in the throes of a digital disruption is the banking industry. The latest Fintech developments and startups are determined to haul the musty, antiquated business out from behind the image of stuffy suits and even stuffier structures of marble clad capitalism and propel it into the future.

Ever keen to embrace innovation the Singapore Monetary Authority recently made an official announcement to open the banking sector to digital players.

In the announcement, it stated the intention to grant licenses to two digital full banks (DFB) and three digital wholesale banks (DWB), with the former serving retail customers and the latter catering to SMEs and non-retail clients. With even more options to choose from, customers are certainly spoilt for choice but deciding which is better depends on a myriad of personal factors.

 

 

Digital Bank Boom

The digital revolution really took off with the advent of the smartphone, with its ability to connect with individuals at all times, in a personal capacity, amid relative security. This, in turn, led to changing consumer habits and demands. Waiting days for a bank transfer, which was accepted before, is now intolerable. Opening an account is too slow if not processed within minutes and too troublesome if it has to be done in person. Catering to a world accepting nothing less than the highest level of convenience and value, with the lowest amount of commitment, digital banks rose to serve those needs. While leveraging on technology, Fintech was born into this brave new reality. Operating primarily online, with little to no physical presence, digital banks, also known as neo banks or challenger banks is the next big Fintech trend -only establishing itself within the last five years in the UK, then catching on in the rest of Europe. Digital banks like N26 from Germany, Revolut and Monzo both from the UK are the major players at this time and have quickly attracted the attention of clients and investors alike.

Headquartered in Berlin, N26 serves a client base of 3.5 million as at June 2019 and having been valued at US$2.6 billion, it is a unicorn more than twice over. Its expansion plans into the US has been underway since July 2019 and it has ambitions to grow its client base by 43% by 2020.

As of June 2019, Monzo is hot on the heels of rival N26. Also eyeing the North American market, it has entered multiple rounds of fundraising on a valuation of US$2 billion, earned from its respectable client base of 2 million subscribers.

The London based Revolut boasts 8 million customers and grew from a valuation of US$1.7 billion to US$10 billion in the space of 2019 which isn’t even over yet. It’s focus is on Asian markets and it is preparing for a Singapore launch in 2020.

 

 

Client Centric Focus

There is no doubt that this new breed of banks is exactly what people have been dreaming of for a long time. All of them have adopted popular policies and given up many traditional service revenue streams in a bid to appeal to customers. A majority have done away with the numerous service fees that accompanies many traditional bank’s functions to win over clients.

To travellers, Monzo’s zero fee structure for spending overseas, zero foreign exchange rate markup and no fees for overseas cash withdrawals up to £200 within a 30-day period is an attractive proposition.

N26 is geared towards freelancers and the self-employed. A current account charges no maintenance fees and does not stipulate a minimum balance. There are no charges on overseas spending and for transfers in the same currency as the account.

If holding and dealing with multiple currencies is something that you encounter often, then an account with Revolut makes the most sense for you. Opening and maintaining an account is free and the account can hold multiple currencies. Additionally, SWIFT transfers to overseas accounts is free and foreign currency exchange rates do not have a spread or any additional charges.

There really is no best digital bank account, as each serves a specific need or customer niche. As such, it would be wise to scrutinise the terms and offerings of several digital banks before picking one or more to sign up with.

 

 

SME Working Capital Loans And SME Fixed Assets Loans Made Easier

Another niche segment that digital banks are aiming for is the underserved SME market, especially as many of them seek SME working capital loans or SME fixed assets loans to keep skin in the business or prepare to expand operations.

As a Fintech company, these banks are willing to utilise non-traditional methods and algorithms to assess credit worthiness.

Compared to traditional banks, the turnaround time is much faster than the average thirty days for regular banks. Loan offer quotes are also provided instantly with a few swipes on the smartphone and there is often no paperwork required. Revolut also has a similar offering and like N26’s business loan, the maximum amount is capped at roughly US$30k to US$50k.The upside is that although the interest rate offer can vary, it is comparable with what normal banks charge.

 

 

Ironing Out The Kinks

Whether you are an individual or a business owner, the new face of banking is one that will appeal to you with its many flavours. However, it does come with some downsides. The cost savings that customers enjoy ultimately comes out from cost efficiencies and savings that digital banks eke out relentlessly. Staff shortage is one area that can become an issue as it did with N26 in Germany recently, resulting in a customer complaint about an €80k fraudulent transfer being addressed only after several days.

An irony is that, on the whole, digital banks offer a lot of flexibility, but within itself, it has limited features when compared to full traditional service banks. If you choose the wrong digital bank, you may find yourself actually paying more in fees. For example, different digital banks have a different limit on daily cash withdrawals, after which a transaction fee applies. This could range from free withdrawals up to US$200 daily at one digital bank to US$800 at another.

As positive as the future looks for digital banking, the industry is still rapidly evolving. Bank regulators are calibrating to adapt to the new entrants and any regulatory gaps that exist between them and traditional banks will eventually narrow, possibly increasing compliance costs. There is also a chance of additional regulatory requirements to combat the increased risks that digital banks face with their business model which makes it easier for criminals to conduct activities like money laundering.

Most of all, though, is the uncertainty of digital banks as a going concern. As yet, none, not even the largest ones like Revolut and N26 have turned a profit in almost four years of operations. This has not gone unnoticed by the public, which is used to wildly popular and ‘successful’ start-ups with plenty of followers and funding money but no profit or even suffering staggering amounts of losses. Consequently full converts to digital banks only make up about 10% in even the most mature market, the UK.

Further reports cite that most people view digital banks only as avenues for short-term spending, and would not deposit more than SG$20k in digital banks.

All in all, it is an exciting time in the industry and it is a welcome change to see banks actively and genuinely thinking out of the box. Though the changes are promising it remains to be seen if it is sustainable. For the time being, just hop onboard and ride the gravy train.

 

 

The Emergence of Digital Banks

Money – we all need it, we all have some of it, and we all definitely want more of it. Yet money is a made-up concept based on the most capricious of human traits: trust. Most currencies have long abandoned any links to valuable assets like the gold standard  and in recent times has even shed its tangible form. Our personal net worth, the holdings of large NMCs and even a country’s national reserves are all almost entirely based on a system of digitised binary signals sequestered behind the walls of the most conspicuous institutions of human civilisation, banks. These venerated institutions often occupy the most prominent locations in the city, emblazoning the skyline with their logos, looming large in the center of business districts with their facades of corinthian columns in gleaming white Italian marble. However, these steadfast institutions are feeling the foundations of their ivory towers being shaken by the digital revolution.

 

 

The Digital Bank Challenge

The decade old financial crisis of 2008 besmirched the reputations of traditional banks and left an indelible mark upon both its customers and investors, leading to the birth of the first Fintech start-ups in the midst of bailouts and austerity measures. Fully digital banks like Atom and Revolut in the UK, and Germany’s N26 were the first to lead the charge in disrupting their brick-and-mortar rivals in the early years of this decade. In the next few years this new wave of challenger banks arrived on Eastern shores. China, Hong Kong and now, Singapore, is jumping onto the bandwagon.

The accepted status quo of the banking industry does not apply to digital banks. They are the free spirits of the finance industry, willing to explore new ideas and fresh new ways of doing business while still striving to make it all commercially sound. Leveraging heavily on technology, these upstart start-ups bring the bank teller window to the client via the smartphone. Opening accounts, forex transactions, insurance, loans and other financial services are made simpler, quicker and cheaper. Digital banks operate leaner, nimbler and more efficiently and have adapted to meet the demands for around-the-clock convenience from today’s consumers. This makes up a large part of their appeal as they are able to serve a greater pool of clients or niche group of clients that traditional banks have largely ignored due to inflexible customer profiling and entrenched practices. More importantly, costs are lower because traditional infrastructure is not needed, and neither is the corresponding manpower to facilitate it. This allows basic services to be offered for free or at a substantially lower cost. Among those that stand to benefit are the new crop of entrepreneurs and gig workers that have come to characterise the evolving demographics of employment across the globe.

 

 

SME Working Capital Loans & SME Fixed Assets Loans

SMEs by their nature are risky endeavours and as such are often viewed with caution by investors and banks looking through loan applications. Funding is consequently sorely lacking and expensive. A typical complaint of SMEs is prohibitively costly SME working capital loans from traditional banks and that even government productivity schemes with subsidised SME fixed assets loans are not attainable across the board. Statistics from the World Bank highlight that 40% of SMEs in developing countries are unable to meet a financing need which equates to a potential market worth US$5.2 trillion annually.

Digital banks are able to tap on non-traditional sources of funding such as peer-to-peer lending to provide financing to SMEs. Temasek Holdings, Singapore’s sovereign wealth investment firm even backed lending platforms by throwing its weight behind Validus, a peer-to-peer lending platform looking to expand into Singapore.

For start-ups, just the partnerships with large local corporations like these contribute value by providing its clients with an association to these blue-chip entities which is seen as a strong vote of confidence. The benefits extend beyond an elite association too, as expertise in running a business is transmitted through loan conditions.

Traditionally, banks determine their loan offers to SMEs based on risk metrics. The usual toolkit consists of collateral, guarantor or cash flow pledging, amongst other types of surety. Digital banks do not give away money carelessly, nor are they exempt from industry regulations but once again utilise technology to assess the creditworthiness of a potential client. Big data provides a more accurate picture as opposed to time worn methods that overburdens clients. In keeping with this direction, digital credibility is being explored as an alternative method of pricing and granting loans. Similar to the mechanics of rating vendors on apps like Grab, Ebay and Carousell, statistics such as service scores, number of bad reviews, social media activity can be harnessed to form a clearer profile of potential clients.

 

 

The Future or Fad?

As with the first movers in any new industry, it may seem that these new challengers are the only ones moving forward. It would be short-sighted to assume that conventional banks are standing still in the face of disruptive competition. All modern banks have been forced to take their operations online and to emulate the client orientated focus of their digital rivals.

Regulators are also keeping an eye on the new breed of digital banks which have an as-yet untested business model and face greater business and security risks due to the lack of personal interaction with clients. Regulatory restrictions will eventually converge for both, narrowing any advantage one has over another.

A true picture of the sustainability of digital banks is obscured by fervent funding at the moment which sustains their operations in this growth phase where the bottomline still remains in the red. As this segment matures, a more level playing field will emerge. A natural progression of digital banks would also naturally gravitate towards providing a stronger customer connection that goes beyond savings on fees. Otherwise, they will be stuck serving only the niche sectors that they currently thrive in.

The move to greater digital presence is unavoidable and the future of banking most likely sees an aggregation of both business models. Traditional retail banks that lack a digital presence would have to duplicate the business model or merge with existing digital banks to acquire this capability. This is a desirable outcome to for digital banks as investors start to demand a return on their seed money or when they seek to grow beyond the niche markets that they currently serve. On one hand retail banks have the financial experience but lack the mobility and technological expertise while on the other there is a Fintech firm with a ready-made turnkey solution without an established client base – sounds like a match made in heaven to me.

 

 

Micro Loans: Examining the Once-Believed Solution to Poverty

Driven by the peer-to-peer economy that has drastically shifted and influenced traditional business practices, micro loans (also known as micro credit) are small loans given out by independent individuals or a group of individuals that each offer a portion of the overall amount, instead of large institutions such as banks and credit unions. Used most widely in developing nations that lack access to modern banks, this form of micro financing exists to aid the survival and growth of small businesses.

One of the chief elements that catapulted the popularity of microlending is the fact that anyone can participate and invest in these third-world businesses. Coupled with the advancement of technology and the Internet, the market is now a lot more accessible, providing an individual in Singapore a swift avenue to give out micro loans to someone from across the pond. The entire process, from finding a lender, to making the transactions, can all be done online.

It’s a useful way for individual lenders, with loads of savings sitting in their bank accounts, to not only boost these businesses run by low-income folks, but also earn a little bit of interest at the end of it. Or rather, a whole lot of interest, since low-income borrowers are likely to default their loans. That’s good news for the lenders who stand to benefit from above market interest rates.

Still, it’s not a completely Utopian arrangement. These micro loans don’t usually come secured by collateral–property or assets that can be seized if the loan isn’t repaid–so if the borrower isn’t able to pay up, it’s likely for the lender to get nothing in return. The obvious risks involved in funding low-income borrowers and businesses could lead you to lose a ton of money, if you don’t know how to strategize and spread the risk. If you do, that is, putting tiny amounts of money into each loan while managing a diverse portfolio of multiple micro loans with different credit qualities, you could turn a profit.

 

 

The History of Micro Loans

Before it reached bigger banks looking to serve SMEs, micro loans were pioneered by Grameen Bank as a way to help and empower the poor. If you dig deeper into history before the existence of the term, micro loans or microcredit, you’ll see that the concept itself isn’t new. Jonathan Swift, the notable author of Gulliver’s Travels, in fact was making micro loans to the destitute in Ireland in the early 18th century before micro loans were a thing.

It was only formerly introduced and rebranded in the late 70s when Muhammad Yunus, a social entrepreneur, banker, economist and Nobel Peace Prize recipient from Bangladesh, realised the potential of micro loans as a viable method of lifting people out of poverty. Furthermore, he believed that “all human beings are born entrepreneurs”. Fuelled by this new idea, he went on to establish Grameen (which means “village”) Bank in 1983. Soon after this Bangladeshi bank revolutionised and popularised micro loans, the rest of the world followed suit with more than 3,000 companies entering the microcredit arena.

Grameen Bank played a key part in shifting the ingrained mindset that lending money to those in poverty who earn just a few dollars a day, will only trap them in debt. It focused on the fact that these people are running microbusinesses, and the provision of loans will help them earn a lot more—more than what they owe their lenders. It works in a cycle, which starts with lending a sufficient amount of money for microbusiness owners to expand their enterprise and exit the poverty pool. The repaid money will then go towards other borrowers, kickstarting their exits as well.

Beyond that, Yunus was also involved in appealing to external funders such as the Ford Foundation. Eventually, this business financing model gained traction, as well as the attention of a slew of investors who took microfinance to the next level. It garnered global development from the 80s to the early 2000s, and most recently hit about 211 million worldwide borrowers in 2013.

 

 

The Mechanics of Micro Loans

In the early days, the original model developed by Grameen Bank mandated that once a loan is issued, repayment begins immediately and stretches out over a year or two. It also introduced group loans, where the loans are shared between a group of borrowers from various households who can help encourage each other to pay up. At that time, Grameen Bank didn’t have physical outlets either, relying instead on individual officers to gather the villagers and borrowers every week to distribute loans and collect payments.

Modern-day versions of this model such as Singapore’s Micro Loan Programme (MLP), on the other hand, work a little differently with different criteria. The MLP, for instance, prioritises the business over the borrower. Not only must the business be registered and incorporated in Singapore, it has to hold at least 30% local shareholding, and have no more than 10 employees or no more than $1 million in annual sales.

 

 

Did Micro Loans Work?

In spite of Yunus’ lofty aspirations, there’s been no concrete evidence of micro loans eradicating poverty on a massive scale. On the contrary, some view it as a crutch, much like how credit cards have not helped but exacerbated the surmounting worldwide debt problem. The popularity of micro loans suffered a major hit around the 2000s when critics started exploring the possibility that these loans may, in fact, be detrimental to its customers.

The issue with microcredit institutions is that they are, at the end of the day, businesses looking to make a profit as well. Yet, their mission is poverty alleviation, an altruistic, non-profit goal. This clear conflict of interest makes it easy for such institutions to fall into the enticing trap of exploitation, raising interest rates to a level that is no longer beneficial to the low-income borrowers. They could argue that it’s necessary to cover costs, but they’re really no better than your average avaricious loan shark.

So out-of-hand has the situation become that the government of Indian state Andhra Pradesh ordered for the closure of microfinance firms in 2010, citing reasons such as overindebtedness and the increased suicide rate among borrowers. As a series of studies confirmed in 2015, the microcredit strategy failed to boost the average income of borrowers.

 

 

The Little Triumphs of Micro Loans

Nevertheless, it wasn’t a total washout. Researchers of those studies also found that people are dedicating more time towards their small businesses and shifting their spending habits. Thanks to Grameen Bank, the microcredit scheme made way for more reliable financial services for low-income groups in developing nations. During emergency situations, in particular, these folks are able to obtain the funds they need to tide over the temporal crisis. It turns out that borrowers are using these micro loans to pay for everyday purchases as well because feeding a family is more important than their entrepreneurial dreams.

Not to mention, it’s moved the needle significantly in terms of empowering women. From Grameen Bank’s commitment (alongside other firms) to offer loans to women, they’ve managed to grant a bit more financial freedom to the half of humankind that’s long been oppressed and undermined. Today, about 80% of micro loan borrowers are female.

Although micro loans haven’t lived up to its expectations as a cure for poverty, there’s no doubt it’s taken small steps to improve the lives of impoverished folks. Take the case of Andhra Pradesh as an example. After the state destroyed its microlending firms, the overall level of salaries in its rural zones dropped as well, proving if anything that micro loans are a right step towards a healthier economy for rural communities.

 

 

Are Risky Property Mortgage Loans Making A Comeback?

Remember the dark ages of 2008? The entire globe went through the single most cataclysmic economic disaster since the Great Depression in the 1930s, its effects rippling through every country on the planet like an astronomical earthquake. Millions of homeowners and breadwinners lost their sole source of income. Millions more were driven into homelessness, living instead in their cars, under the poverty line. Thanks to major cuts in healthcare, the years between 2008 and 2010 also saw an additional 500,000 deaths caused by cancer. All this because of the careless introduction of risky property mortgage loans in America.

Just when the world has finally regained its equilibrium (more or less), real estate experts posit that history might soon repeat itself. Despite what happened the last time, risky, subprime loans seem to be making a comeback—albeit rebranded with a shiny, new name this time. Have we learnt nothing from the recent past? Well, to be fair, most of us probably didn’t fully understand what happened in 2008. The majority of us laymen didn’t even know the entire snafu originated in America’s housing market. For those who are still in the dark about the whole debacle, here’s a primer to get you up to speed.

Back in the day, the housing market in America was rock solid. At least, that was what everyone believed. It meant that the most dubious of investments, as long as they were backed by mortgages, were seen as safe. Because who doesn’t pay their mortgage, right? So thus enters mortgage-backed securities, which are basically shares of a property mortgage loan that are sold to investors.

It starts with a smaller bank selling bunches of loans to a larger bank, which groups these loans and turns them into a mortgage-backed security. Shares of this security, also known as tranches, are sold to investors. The remainder of unsold tranches are repackaged and sold as collateralized debt obligations (CDOs). And it goes on and on and on, to the point where you’ve got CDOs of CDOs (or CDOs squared). 

The problem with all this is that the banks were dealing with subprime loans. It essentially means that they were lending huge sums of money to people who would probably struggle with the monthly repayments. People with no income, no job, and no assets. Most of the time, the lenders themselves make no effort in verifying the details of the applicants. While the banks were making an insane amount of money from these securities and CDOs, they were also blissfully unaware of its repercussions.

Not only did it result in an avalanche of property mortgage loan defaults, the biggest investment banks in America ended up going into bankruptcy because they were unable to absorb the monstrous losses. To prevent the entire banking industry from collapsing, the Federal treasury department printed $700 billion out of thin air, under the Emergency Economic Stabilization Act of 2008—the big bank bailout—that was passed and signed into law by the US government. Of course, you can’t solve real-life problems with just a flick of the wand. Because the US currency is a global currency with which most international trading is done and to which many foreign currencies are pegged, if the US currency drops, the entire world economy will combust as well (more than it did when the crash of ‘08 happened). The rest of the world thus had to support this bank bailout, the biggest lender being China who now owns about $1.11 trillion in US debt.

From the American housing market to the world economy, this fiasco escalated in a way that no one had anticipated (save for a few eagle-eyed hedge funders and Wall Street mavericks). Their mistake was not paying attention and taking an obviously ‘too-good-to-be-true’ situation for granted. Well, once bitten, twice shy, right? Perhaps not, considering that the market has decided to reintroduce subprime loans under the disguise of a different mask, a move spurred by a slowing industry and businesses looking for ways to earn more.

They call them non-qualifying loans, which refer to property mortgage loans that deviate from the standards of the Consumer Financial Protection Bureau. This, in itself, should raise some eyebrows. Under these non-qualifying loans are the interest-only adjustable rate mortgage, and the income verification (or “ability to repay”) loan. The former allows the borrower to pay just the interest owed each month, instead of the actual mortgage, for a period of time. The latter seeks out people without a steady paycheque, receiving money in big chunks instead.

Claiming to cater to those with non-traditional sources of income, rather than folks without one to begin with, these brokers assert that they’re working with higher standards now. Yet, such malleable, unclear definitions may lead to exploitation, whether it’s borrowers taking advantage of these alternative schemes to buy lavish houses that they can’t afford, or unethical lenders shoving these plans onto borrowers for a quick buck. That was what created the housing bubble, prior to the 2008 collapse, and it could happen again today.

While affluent buyers may benefit from these non-qualifying property mortgage loans, issues such as a supply-demand imbalance in high-end properties or a housing decline (jacking up prices massively) could come up in the future and jeopardise their investments. The last thing you’d want is to have a mortgage that’s higher than the value of the property. At least with a traditional fixed-rate mortgage, your monthly principal payments will help boost your equity as a homeowner. Not with an interest-only adjustable rate mortgage (especially if you ignore your principal payments during the interest-only period), which will only spell trouble.

To sidestep another housing (and economic) crash, brokers and lenders can’t get greedy. They need to do their due diligence, take extensive steps in verifying the borrowers, and know which types of borrowers are best suited for these alternative loans in the first place. Peter Boomer of PNC Bank recommends borrowers who are not going to stay in their homes for the entire 30 years of an average mortgage’s term, whose salary includes a bonus that comprises the majority of their income, and who treat the mortgage as a type of debt in their investment portfolio. Borrowers have to be astute as well and know what they’re getting into before they sign the contract, instead of getting swept away by overly enticing schemes. At the end of the day, the biggest losers will still be the common folk, the underprivileged, and the gullible. It’s time we all wised up and paid attention.

 

 

Re-shaping the Future: Becoming a Circular Economy

Resource depletion, global warming and climate change are grim realities that our planet and global population are facing as their impact on the state of the economy, society and our very way of life becomes ever more urgent. Much has been said about the need for greater awareness of these environmental problems and crucially, the need for solutions to mitigate or prevent the inevitably dire consequences they will bring.

Amidst the doom and gloom, the circular economy has emerged as a concept that offers a sustainable solution to these complex planetary challenges.

A circular economy is an alternative to the traditional linear economy (which follows a make-use- dispose process) in which we keep resources in use for as long as possible, extract the maximum value from them whilst in use, then recover and regenerate products and materials at the end of each service life.

The circular economy involves gradually decoupling economic activity from the consumption of finite resources, and designing waste out of the system. It is driven by a transition to renewable energy sources. The circular logic of this model builds economic, natural and social capital.

Even though the circular economy concept appears to be a novel one, the idea of circularity itself has deep historical and philosophical origins. The idea of feedback and of cycles in real-world systems has roots in various schools of ancient philosophy. It was revived in industrialised countries after World War II when the emergence of computer-based studies of non-linear systems revealed the complex and interrelated nature of the world we live in.

With modern-day advances, digital technology has the power to support the transition to a circular economy by radically increasing virtualisation, de-materialisation, transparency, and feedback-driven intelligence.

 

 

Benefits of a Circular Economy

A shift to a circular economy portends numerous benefits, the environmental one being foremost. The initial target of the circular economy is to have a positive effect on the ecosystem and to mitigate the exploitation and overstress of the environment. It has the potential to reduce harmful gas emissions and the use of primary raw materials, increase agricultural productivity, and decrease in negative externalities such as pollution and waste.

Economic benefits can still be had under the circular economy. These include continued economic growth, substantial material savings, growth in employment and incentives for innovation. According to calculations by strategic consultancy McKinsey & Co., the GDP of a circular economy grows due to a combination of increased revenue from new circular activities, and cheaper production costs from getting more functionality from materials and other inputs. The value-add of circular products and services leads to higher valuation of labour, which increases income and expenditure per household, thus resulting in a higher GDP.

A transition to the circular economy would also have positive effects on employment. This could be due to greater spending by lower prices, increase in labour-intensive, high-quality recycling and repair practices, and growth in new businesses through innovation, the service economy and new business models.

A circular economy is a driver of innovation as new solutions based on a new way of thinking are sought. A shift to circular rather than linear value chains and aiming for optimization for the entire system results in new insights. It also spurs interdisciplinary collaboration between designers, manufacturers and recyclers, resulting in sustainable innovations.

 

 

Embracing the Circular Economy in Singapore

The government in Singapore has acknowledged the need to embrace the circular economy and is enacting multiple policies and initiatives in that direction. Some aspects of Singapore’s vital resources already adhere to the circular concept. For instance, the water sector functions in a closed loop as used water is converted into NEWater, significantly enhancing Singapore’s water resilience and sustainability.

According to Environment and Water Resources Minister Masagos Zulkifli, the authorities are now working on closing the waste loop. To that end, under its Sustainable Singapore Blueprint, Singapore aims to become a Zero Waste Nation and achieve a 70% recycling rate by 2030.

 

 

 

 

This is an area that needs improvement considering current recycling rates: Singapore’s household recycling rate of 21% is low when compared to other developed countries like Germany and South Korea. The blue recycling bins placed at HDB flats are “gradually becoming a more welcome sight in many estates”, said Minister Masagos, but some still treat them as general waste bins. The National Environment Agency estimates that 40% of the load collected from these bins is tainted. We would all do well do adopt better recycling practices.

Policies are also being reviewed to encourage sustainable production and consumption, particularly in sectors where the market fails to take into account environmental externalities. For that, the government is introducing a mandatory reporting framework for packaging data and waste reduction plans, to be in force in 2020, to require that producers be responsible for the ‘end-of-life’ of their products. Businesses, such as brand owners, importers and large retailers will need to start collecting data on the types and amounts of packaging they place on the market and submit plans for reduction.

Such a system is based on Extended Producer Responsibility (EPR), a policy approach under which producers are given a significant responsibility – financial and/or physical – for the treatment or disposal of post-consumer products. EPR It will incentivise businesses to design products that are more easily recycled, or develop innovative circular business models. The overall aim is to bring about more sustainable use of packaging materials, including single-use plastic packaging, by businesses and consumers.

In addition to reducing plastic waste, Singapore is relooking the waste management cycle for three major streams of trash – food waste, packing waste and e-waste – under its first Zero Waste Masterplan. To that end, the environment ministry has designated 2019 as Singapore’s Year Towards Zero Waste, a campaign that aims to raise awareness of waste issues and the need to conserve resources. Electronic waste or e-waste is a waste stream of particular concern due to its toxic nature; Singapore produces in excess of 60,000 tonnes of e-waste a year.

In order to help Singapore achieve its zero-waste goals, S$45 million has been invested in harvesting smart technology, as well as research and development. One example is finding other uses for Singapore’s incinerator bottom ash (IBA), a form of ash produced in incineration facilities which is usually dumped into the Pulau Semakau landfill. One option being explored is developing technological solutions to extract potentially toxic metals from the IBA. If that can be done, the IBA can be mixed with construction materials and also used for road construction.

Transforming the environmental services industry is another part of a shift towards a circular economy. The industry currently faces acute challenges such as an ageing workforce and low productivity. Under an industry transformation map, the government is pushing to increase productivity, digitalisation and innovation to introduce new vibrancy into the sector and to provide better jobs under the circular economy.

To support innovation, a regulatory sandbox for environmental services has been introduced. This allows innovative environmental services-related technologies and solutions to be tested in a safe environment with relaxed regulations, a necessary ingredient for a circular economy that always seeks new ways of doing things.

As a city-state known for its excellent governance, infrastructure and human capital, Singapore has the potential to be a world-leading circular economy. However, this will require not just the policies and resources of government and industry, but the enlightened effort of each and every individual as a consumer of goods and services, working member of the economy, and inhabitant of this beautiful planet.

In line with Singapore Sustainable Blueprint, corporations are proactively incorporating green efforts into every aspect of their organisation inorder to be keeping up to times. Sustainability has become the key strategy and new business approach in creating long-term value and foster longevity in the industry.

Require some funding to expand or transform your business? We offer a series of financing solutions for businesses from equipment financing, term loan singapore, SME Micro Loan and many more. Do contact us for a non-obligatory discussion!

 

 

Choosing your Working Capital Loan Lender: 5 Things to Consider

As a borrower, you should look beyond your immediate needs. A suitable Working Capital Loan lender should be able to match your evolving financial needs as your business grows. The longevity of the relationship should be your end goal in mind. To start off on the right foot, how do you choose the right lender for your business? Here are 5 key factors to consider:

 

 

Credibility

Before committing to something new, a common practice is to ask around our circle of friends and family. It is advisable to do the same when taking up an SME business loan. Before handing over your sensitive personal and business financial information, ascertain that your lender is trustworthy. Accreditations by objective parties play an imperative role. Check against this list of licensed moneylenders in Singapore. Actively connect with other small business owners who have been in a similar position. They are likely to provide reliable referrals. When you get in touch with a potential lender, do your own groundwork. Observe if your queries are promptly and accurately addressed.

 

 

Interest Rates

Chances are interest rate is your first concern as a borrower. Never settle for the first quotation you receive. You can only determine how competitive the interest rate of a Working Capital Loan lender is when you have seen the rates of others. Most of the time, interest rates are proportional to the urgency of funding. If your business demands a higher response rate, it will probably come with higher interest rates.

 

 

Additional Fees

There are a number of costs associated with a Working Capital Loan. Some lenders leave it to you to read the fine print. Be aware of the basic costs to expect. It equips you to enquire on specific areas if details are not laid out transparently. The additional fees you can expect to pay include: origination fees, appraisal fees, underwriting fees and processing fees. Some lenders may offer packages that waive certain fees and others may include other miscellaneous fees.

 

 

Flexibility of Repayment

Some banks or financial institutions may offer no room for negotiation when it comes to fulfilling your repayment plan. Look for a lender that offers flexibility. You will find this quality especially invaluable when unexpected events arise. For example: seasonal fluctuations, business expansion opportunities, economic downturn etc. In these situations, it is vital that your lender is open to providing alternative options. For instance, an alternative option will be stretching your loan tenure without charging an exorbitant penalty fee.

 

 

Response time

Time is of the essence when it comes to business. Banks can take up to months to approve a loan application. By the end of the process, a golden opportunity may have slipped you by. In this aspect, a private Working Capital Loan Lender typically one-ups a bank. The key response times are: time taken to deliver proposal, time taken to deliver commitment, time taken to deliver closing documents and time taken to disburse funds. The shorter the response time, the lesser opportunity cost incurred by your business.

 

 

Conclusion

In conclusion, your choice depends on your business priorities. There is no one-size-fits-all solution to finding a Working Capital Loan Lender. More often than not, one or more factors will be compromised in a financing arrangement. For example, if response time is on the top of your priority list, it is highly likely interest rates may be higher.

 

 

Why ETHOZ?

Incorporated in 1981, ETHOZ is an established Working Capital Loan Lender. Our shareholders are well-established in the market – Tan Chong Motors and ORIX. At ETHOZ, we understand the importance of being equipped with cash flow to capitalize on a window of opportunity. Hence, we pride ourselves on our competitive response time. With our customers’ varying and evolving needs in mind, we offer flexible repayment options. Our processing fees and interest rates are fixed, providing transparency to all our customers.

To find out more on how ETHOZ can assist your business with Working Capital Loans, call us at 6654 7799 or drop us a message here.

 

 

How Fintech is Reshaping the Financial Sector

“Fintech” has become a buzzword in the tech community of late, and for good reason as well. Based on a KPMG Pulse of Fintech report, funding for the industry went over the US$31 billion mark in 2017 – US$229.1 million in Singapore alone. This year, it only took six months for global investments to reach US$41.7 billion, surpassing that of last year, says research by Fintech Global.

But what is “fintech” really about and why has it seemingly taken over the financial landscape? To the uninitiated, fintech is short for financial technology, and is at its core the use of technology to develop new financial services and products – often for financial businesses themselves.

Such innovations (such as cryptocurrency, mobile banking, crowdfunding and blockchain) are typically disruptive to the traditional market, and may bank on other technological trends such as big data, the Internet of Things and artificial intelligence (AI).

While this has created a wealth of opportunities for startups to break into the finance market with new Fintech Singapore innovations, industry giants in the form of major insurance and banking institutions have hopped onto the bandwagon as well with their own developments, resulting in changes in various banking, lending and insurance services.

 

 

Banking Services

For one, traditional banking is evolving into a more digital process with mobile payment apps, Internet banking and digital, paperless outlets. DBS, one of the most popular banks in Singapore and the largest one in Southeast Asia, is leading the way with a complete rebranding. Kick-started in May 2018, its golden jubilee saw the “world’s best digital bank” focusing a lot more on digitising and automating its services with an aim to make banking “invisible”.

It started in 2014 when the bank launched DBS PayLah!, its mobile payment and money transfer app. Today, it has unveiled fully mobile, digital banks (also known as digibank) in India and Indonesia that use AI virtual assistants and natural language technology to serve more than a million customers.

But it’s not enough to introduce these front-end solutions. It had to be a total revamp that tackles even the back-end processes, such as running internal operations on the cloud and rejuvenating old legacy systems with APIs.

With increased digitisation, comes more obsolete jobs as well. In DBS’s case, Digibank’s AI-powered assistants have replaced customer service representatives and conventional bank tellers. Likewise, OCBC’s digitisation efforts have led to the cutting down of teller jobs. As Business Times reports, the number of tellers working at OCBC has dropped by 15 percent in the last five years, and the bank is looking to reduce the number even more to half as many in the next two years.

At the same time, the remainder of the banking workforce that deal with customers are sent for training to get them reskilled and geared up for the new digital wave. Known as the professional conversion programme (PCP), it has seen hundreds and thousands of employees from Citibank, DBS and UOB.

In the area of investment, automation has also been made possible through fintech. Dubbed “robo advisers”, they replace their human counterparts, and use algorithms and the abundance of data they have to offer investment advice, making it a less complex and costly process for individuals. These are useful tools for investing newbies, as well as those who lack the time and energy to manage their assets and investments.

Various apps have popped up as well, some providing a marketplace that matches investors with borrowers, others introducing an easy, passive way to make micro-investments.

 

 

Lending Services

A close cousin to investing is lending, of which the traditional process involves the borrower, lender and regulator. With fintech introducing peer-to-peer lending and crowdfunding platforms, the middleman is removed.

The money now moves directly from one party to another without the help of intermediary institutions such as banks and insurance firms. As such, the cost of borrowing is pleasantly lowered, while the length of such transactions is shortened.

Though the absence of an established middleman translates to more control over the lending process, there is the issue of security. How do you ensure you’re not just throwing your money away? Thankfully, fintech has solutions for this as well, and the answer lies in data analytics.

Lenders are able to gather a wealth of data from sundry sources and websites, with the click of a button, to analyse the borrower’s creditworthiness and discern the risk attached to them. Because such data is so readily available, the review process becomes a lot speedier and no longer requires stacks and stacks of documents – which means greater convenience for the borrower.

Processes such risk assessment and underwriting have been automated with fintech, while traditional banks are lagging behind with manual, human-powered work. Needless to say, thanks to automation, it has led to a massive reduction in operating costs, and increased the capability to process and approve more cases – in particular, cases that larger banking institutions would typically reject.

Though the ones who stand to gain more from these new lending models (made possible through fintech) seems to be the borrowers, the lenders are not forgotten either and receive more autonomy over their loans – a big benefit of security and control that isn’t afforded in traditional processes.

 

 

Insurance Services

Just as other sectors of the finance industry have seen a flurry of new apps, services and programmes, so has the insurance sector. From Singapore Life to PolicyPal, these products simplify the process of getting insured and advise you on the best plans for your specific needs, with all things taken care of within the digital sphere.

Not only do users get more transparency over the process, they also get to dodge the traditionally high premiums of insurance offered by the usual insurance companies. While the consumers enjoy these digital perks, the agents suffer the consequences.

Gone will be the days of commission-driven insurance sales, when people are better equipped to buy the plans themselves. It’s no surprise that the fintech-fuelled digital transformation of finance corporations equates to the loss of jobs, and while some have quietly accepted their fate, others have been pushing back – such as the insurance agents of Prudential.

After announcing their plans for digitalisation, about 350 out of 600 its dissatisfied employees submitted a petition in protest, citing that focusing on online sales will threaten their earnings, and thus, their jobs.

Perhaps it’s a necessary evil to reduce or get rid of soon-to-be obsolete jobs. For Prudential, they’ve set their sight on using new technologies such as AI to data analytics to produce better products and experiences.

As long as traditional companies such as DBS and Prudential continue to adapt to the changing landscape and customer needs, they just might stay afloat long enough not to be wiped out by the fintech disruption. As for the others who still believe in the “old is gold” adage, it’s likely to end up as fool’s gold.

 

 

SME Working Capital Loan Application: 5 Things Lenders Consider

Understanding your lender’s perspective is key to securing a business loan. When reviewing a Working Capital Loan Application, lenders assess your SME based on a few critical factors. The 5 Cs of Credit is a benchmark commonly used by lenders to determine the credit worthiness of potential borrowers.

In this article, we look at the 5 Cs of Credit and how you can improve on them. This will increase your chances of a successful Working Capital Loan application:

 

 

Character

Character refers to a business’s reputation of trustworthiness. Having a solid credit history is a good indication. It reflects your ability to run a profitable business. For young SMEs with minimal business credit history, your personal credit score as a business owner is critical. If your business has been operating without credit history, we recommend that you start building your business credit score. It will come in useful in future loan application for expansion purposes. Ways to improve your credit history are ensuring timely repayments, leaving a percentage of available credit unutilized and having a good credit mix. In addition to your credit history, lenders also look at the length of time in business. The longer you have been in operation and profiting, the lower the risk perceived. A fair amount of management and ownership experience is an added bonus.

 

 

Capacity

The primary concern of a lender is whether your daily business operations generates sufficient cash flow for repayments. Most lenders require you to provide cash flow statements and projections. Another common measure of financial health is Debt Service Coverage Ratio. It measures the relationship between the debt and income of your business. As a general rule of thumb, a ratio under 30% is favorable. Having a buffer allows your business to continue making timely repayments in times of financial instability.

There are a few ways to lower your Debt Service Coverage Ratio. The methods are: increasing your net operating income, decreasing your net operating expenses, and paying off existing debt.

 

 

Capital

Capital refers to how much money you, as a business owner, have invested in your venture. In other words, it refers to how much you have at stake if the business fails. A large investment in your business indicates that you are willing to take a personal risk. This in turn gives lenders the confidence to take the risk with you.

The key is to allow your lenders to see your commitment to the business. First of all, have a significant personal investment in the business. Next, highlight how you have been successful in utilizing your capital in investments. Back your success with figures i.e. increase in sales revenue. Lastly, communicate the purpose of the loan. Let your lenders know the detailed planning of how the loan amount will be distributed across business operations.

 

 

Collateral

Collateral is an asset pledged to the lender. Similar to owner’s capital, collateral gives the lender assurance. If your business defaults on the loan, the lender can recover the debt by seizing and liquidating the collateral. To ensure that the collateral provides sufficient security, the useful life of the collateral is expected to meet or exceed the term of the loan. As an extra layer of security, most lenders loan only a percentage of the appraised value of the collateral. Each lender has a set of requirements when it comes to collateral. Some lenders will require a personal guarantee. As there are no specific assets pledged, personal guarantee does not constitute a secured loan. However, it is important to understand that all of your personal assets are at stake if you fail to make repayment. At the end of the day, it boils down to the extent you are comfortable with offering as collateral to secure a loan.

 

 

Conditions

A lender takes into consideration factors beyond the boundaries of your business. Factors include the global and national economy, industry trends, as well as legislative changes relative to your business. These factors directly affect the ability of your business in making repayments. While you may not be able to control the aforementioned factors, you can improve conditions. A tip is to apply at the right timing. While it may seem counter intuitive, the best time to make a Working Capital Loan application is when your business does not need it. When your business and the economy are flourishing, you are likely to receive the most favorable terms.

All in all, aim to establish the trustworthiness and profitability of your business. The end goal of a lender is to receive timely repayments. If you are weaker in one aspect, compensate with your strength in the other 4 Cs.

Stay tuned for our final installment of this series – 5 Things to Consider When Choosing a Working Capital Loan Lender. Visit our Working Capital Loans for small business page or call us at 6654 7799. Alternatively, drop us an email at contactus@ethozgroup.com today!