Micro Loan vs Invoice Factoring vs Invoice Financing in Singapore

Singapore has a unique position in the global economy and a pivotal role as a business epicentre in the heart of Asia. The economic powerhouse has been consistently acknowledged over the years as an international business hub with developed infrastructure, political stability, open business policies, and a skilled workforce.

Many global businesses have found it advantageous to site their headquarters in Singapore. Strong trade and investment make Singapore the most competitive Asian country and one of the world’s most accessible places to do business. That being said, running a lucrative business in Singapore is no easy feat for anyone.

What is the main component of running a business?

Simply put, that would be maintaining a good cash flow.

Maintaining a constant cash flow is essential for companies. A successful business requires significant operating cash to run business activities effectively and improve profitability. For instance, it could be necessary to purchase new equipment, train and retain people, or acquire additional property. Running a business requires a lot of upfront cash to procure raw materials, pay general expenses, wages, etc. If your customers are slow-paying or the credit cycle is extended to several months, the cash deficiency could be a daunting issue and pose a risk to your business. Most SMEs would then apply for financing to help smoothen the cash flow hindrance.

What are the types of loans that are available for your business? 

Many companies use various alternatives in the loan industry to supply their financial needs. The numerous lending choices open to business people include Non-Banking Financial Corporations, traditional banks, government agencies, and even crowd-funding.

Applying for a business loan is one standard option to manage cash flow volatility, and many often consider short-term loans to traditional loans.

Micro loans, Invoice Factoring Loans, and Invoice Financing are among the types of short term loans businesses can apply for to help with business maintenance and improve cash flow. But how would you choose the right loan for your business, and which would be your best option? 

 

Micro loan Invoice Factoring Invoice Financing
How does it work? A government-assisted short term financing scheme designed to help SMEs, and small businesses in Singapore access working capital financing when they need it.

Small companies and SMEs that apply will need to undergo a loan assessment to determine whether they are eligible for the loan’s low-interest rates, low fees, and favourable terms.

Factoring is a type of financing that helps improve companies’ cash flow with slow-paying invoices. This form of financing gives the client access to immediate funds, which can then be used to pay for business expenses and grow.

Invoice factoring takes in the whole outstanding sum in your invoices.

Invoice financing is a cash flow solution allowing companies to finance their accounts receivables and receive early payments.

Invoice financing only takes in invoices that you want to sell. This means you will continue to remain in charge of your accounts and business.

 

But Invoice Factoring and Invoice Financing sounds similar; how are they different from one another? 

Many seem to confuse Invoice Factoring and Invoice Financing as the terms are often used interchangeably. In fact, Invoice factoring is a type of invoice financing. However, when most people use the term “invoice financing,” they refer to accounts receivable financing.

Accounts receivable financing or Invoice Financing is actually quite similar to invoice factoring. However, with this type of loan, your unpaid invoices act as the collateral to secure a line of credit. The amount of your line of credit is determined by the value of your invoices. 

With Invoice Factoring, you receive a lump-sum payment from the factor based on the total invoice value. Simply put, the factoring company purchases your invoices instead of taking a part of them. Therefore, the factoring company is responsible for collecting payments from your customers. However, with Invoice Financing, the invoices still belong to you and are only used as collateral. This means that collecting payments from customers is your responsibility.

In conclusion, with Invoice Financing, you’ll get an option to pick and choose which invoices to finance as and when needed. Whereas with Invoice Factoring, you’d expect less flexibility as the invoice amounts are typically advanced in the order received.

With short term loans, many aspects will help you decide which type of loan would be the best for your current and upcoming business. Some elements would be the loan amount, interest rate, eligibility requirements, loan disbursement, and repayment duration.

 

Micro loan Invoice Factoring Invoice Financing
Loan amount Capped at S$100,000 Up to 90% of invoice value 70 – 90% of the total invoice
Interest rate From 5.5% p.a.* From 0.25% per month* From 0.5% – 3% per month*
Eligibility requirement – Must have an annual turnover of at least $300,000.

– Must prove they can pay off the entire financing amount. This means SMEs must have strong cash flow, evidence of success and not too many other business loan debts.

– Must have been operating in Singapore for at least six months.

– Good credit history with business owners or the company will help the application process.

– At least 1 guarantor must be Singaporean, or Singapore PR, aged between 21 and 62. Guarantors are required to have a minimum income of S$30,000 per annum (depends on the financial institution)

– Singapore registered business

– Minimum 30% shareholding by a Singaporean Citizen or Permanent Resident Director

6 months minimum operating history

– Business revenue will need to be at least S$100,000 – S$500,000 a year.

– Singapore registered business

– Minimum 30% shareholding by a Singaporean Citizen or Permanent Resident Director

6 months minimum operating history

– Business revenue will need to be at least S$100,000 – S$500,000 a year.

Loan disbursement period As fast as 24 hours 3 days to 1-month 3 days to 1-month
Repayment duration 1 to 5 years – Depends on the amount of your invoice – Depends on the amount of your invoice

*Terms and conditions apply.

In conclusion, if you require a quick cash flow to boost your business or unpaid invoices are dragging your business down, it is time for you to consider short term loans to keep your business running and increase profits. With Micro loan, Invoice Financing and, Invoice Factoring, you can receive the money you need even when you don’t qualify for a traditional loan. Do consider what type of financing would work best for your business, look around for the most affordable fees, and select a lender based on the financial needs of your business to keep it running like a well-oiled machine.

Sources:

  1. https://www.rikvin.com/blog/singapore-micro-loan-program/#:~:text=The%20Government%20has%20increased%20its,from%206.25%25%20to%205.5%25.
  2. https://www.merchantmaverick.com/invoice-factoring-vs-financing/#Financing_VS_Factoring_Whats_The_Difference
  3. https://www.ocbc.com/business-banking/smes/loans/business-first-loan
  4. https://www.valuechampion.sg/micro-loan-small-business#:~:text=Micro%20loans%20are%20a%20type,used%20for%20many%20different%20purposes.
  5. https://dollarsandsense.sg/invoice-financing-can-help-smes-singapore-cash-flow/
  6. https://capitall.com.sg/business-loan-singapore-invoice-financing/
  7. https://smeloan.sg/blog/factoring-how-it-helps-small-businesses/#Factoring_for_Small_Business
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