How can foreign owned SMEs access business financing?

How can foreign owned SMEs access business financing?

Singapore has always been an attractive location for business setup. Singapore is one of the easiest countries in the world where one can set up a business. It is ranked the second easiest country in the world to operate a business by the World Bank’s group annual Doing Business report.

There are about 37,400 international companies based in Singapore out of which 7,000 are MNCs. Singapore’s appeal as a business hub and beachhead for expansion to the rest of ASEAN region remains unfettered even throughout the pandemic.  

Why is Singapore an attractive location to setup a business?

In Singapore one has easy access to simple tax regime where the company only needs to pay taxes on its income as opposed to other countries where taxes are payable based on both income and investments. The headline corporate tax rate of 17% is also one of the lowest in the world, although that might change in time to come with the minimum global corporate tax rate pact.

Other reasons why foreign entrepreneurs find it attractive to base their operations in Singapore include political stability, an advanced economy and infrastructure, innovation led competitiveness and strong IP processes.

Singapore is also an exciting fintech capital nexus with Singapore based start-ups accounting for over three-quarters of the region’s venture capital investments in 2019. Over $5.5B in venture capital was attracted to local based tech startups in 2020 alone, despite the endemic.

Can foreign owned SMEs access financing in Singapore?

It is challenging for businesses that are majority owned by foreigners to secure a business loan in Singapore. Most banks will require minimum 30% of the applicant company’s shares to be held by a local shareholder. This is to mitigate flight risk.

For majority foreign owned SMEs in Singapore, if there is a local shareholder and guarantor holding at least 30% shareholdings, most banks are still able to evaluate the funding request.

The minimum 30% local shareholdings requirement does not infer to just local Singaporeans, but PRs (Permanent Residents) too. So, a foreigner who has already secured PR status is technically still eligible to apply for business financing.

However, a PR owned SME still entails flight risk for lenders. So, it’s common for banks and financial institutions to require some form of collateral when underwriting loan applications.

There are other ways a PR owned SME could try to mitigate flight risk to lenders. These include proving the “rootedness” of the business owner. If the business owner owns and resides in a residential property locally, or if immediate family nucleus such as children are born or schooling in Singapore, these could be highlighted and shared with lenders.

What are alternative financing solutions for foreign owned SMEs?

There are also other alternative financing options for foreign owned SMEs to consider.

Some viable alternative financing solution include factoring, or invoice financing. With invoice financing, SMEs can secure funds against their outstanding invoices which are paid within a specific timeline.

If the debtors of a foreign owned company are local businesses with established brand name or credibility, financiers can assess credit risk on these debtors instead of the borrower.

Receivables can be assigned to the financier via legal instruments and financier can unlock a portion of funds immediately to the borrower. This would help with short-term working capital by unlocking cash flow stuck in receivables.

Aside from traditional mainstream factoring financiers and banks, there are multiple alternative factoring lenders such as P2P platforms and fintech lenders offering innovative invoice financing options.


Singapore remains an extremely attractive and business-friendly location to start, operate and fund a startup. However, there are still challenges for smaller foreign owned SMEs and startups to obtain financing from banks and financial institutions due to flight risk. Alternative financing solutions such as invoice financing or factoring could be a viable option to consider. 

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