The Monetary Authority of Singapore (MAS) has opted to relax current rules regarding how finance companies provide loans to SMEs and startups.
At the moment, a finance company faces a cap of 10% of capital funds for total uncollateralised lending, with a S$5000 maximum to a single borrower.
The MAS intends to gradually relax these limits, raising the cap to 25% of capital funds, while a single borrower can obtain a loan of up to 0.5% of total capital funds.
There are only three finance companies currently licensed by MAS to take deposits and loans – Hong Leong Finance, Sing Investments and SIngapura Finance – with combined assets amounting to S$16 billion.
The relaxation of the prevailing regulations was in direct response to the Committee on the Future Economy. The new limits would allow finance companies to provide up to S$550 million in uncollateralised loans, according to The Business Times.
The relaxation of MAS rules are regarded as a welcome move, as it would grant SMEs and startups easier access to loans without the need to offer collateral. It makes it far easier for entrepreneurs to secure financing, whilst also driving the initiative to make Singapore an epicentre of innovative technology.
Of course, choosing between finance company loans and funding from a private investor is something startups must consider carefully. While obtaining a loan may help later stage startups to scale and develop their business operations, it perhaps is not as suitable for younger companies seeking initial funding.
Whether it will change how startups in the travel industry seek funding remains to be seen. Typically, travel startups most visibly seek to raise capital through standard investment rounds with venture capital firms and angel investors.
Saki Kobayashi (founder and COO of LCO-Creation) said, “As a travel startup, we have only sought investment from angels, VCs, and strategic companies. My co-founder and I were seeking more than just financial support. We wanted an investor’s profound experience, know-hows, and an extensive network in the industry, or in case of a private company, a strategic partnership that could drive business growth.”
“I do believe Singapore travel startups can benefit from the new MAS relaxation of loan rules – if the application process is simple/ straightforward, founders can focus more on the day-to-day business operation,” said Kobayashi.
The MAS also announced a new framework to accelerate the venture capital licensing process in Singapore from a few months to a matter of weeks. While some checks will remain in place (e.g. for criminal records), other criteria such as minimum capital, experience and auditing will be dropped. It reflects Singapore’s active efforts to attract more investment funds in the city-state to help entrepreneurship to thrive.
If it does indeed encourage more VC firms to set up in Singapore (there are currently 29 VC managers), it will arguably have a much more relevant and positive impact on travel technology startups than finance company regulations.
Alongside these developments, startup investment culture is definitely garnering momentum. Online ‘match-making’ systems (such as e27’s Top 100) are even being developed to partner startups with their most suitable investors, and vice versa, to make the process far more productive.
Added to that, more established companies have launched startup initiatives (for example, Amadeus Next and Booking.com’s Booster) to drive the travel tech industry forward in the region.
Nevertheless, it will be interesting to see whether the cumulative relaxation of these regulations will actually serve the MAS’ intention to drive further technological innovation in Singapore, generally speaking.
Lead image: Tax Credits via Flickr
