Temporary Bridging Loan Programme: How It Works And What Are The Criteria For Businesses To Apply For It?
This article is written in collaboration with OCBC Business Banking. All views expressed are the independent opinion of DollarsAndSense.sg. You can refer to our Editorial Policy here.
COVID-19 has impacted businesses around the world to a degree that many of us have never seen before. In Singapore, companies have also likewise been greatly affected.
Circuit Breaker measures were first introduced in April and have since been extended. This means that only essential services are allowed to continue operating at their work premises. Even then, these businesses are required to reduce the number of people working at their work premises. All other companies are required to close their workplaces, with workers asked to work from home if possible – or not work at all.
To help businesses survive this period of unprecedented difficulty, the Singapore government has introduced a slew of measures.
One such scheme is the Temporary Bridging Loan Programme. This government-assisted loan programme helps Singapore companies get access to working capital loans at low cost to ease their short-term and mid-term cash flow challenges.
How Does The Temporary Bridging Loan Work?
The Temporary Bridging Loan Programme allows eligible businesses to borrow up to SGD$5 million, with a repayment period of up to 5 years.
Under the scheme, interest rates charged by Participating Financial Institutions (“PFIs”) are capped at a maximum interest rate of 5% per annum. Depending on your company’s credit history and financial performance, you may be able to enjoy an interest rate of 3% per annum or less.
The TBLP is known as a government-assisted loan programme because the government will take on 90% of the risk-share on new loans applied for from 8 April 2020 to 31 March 2021. In the event of a default, the PFIs can make a claim against Enterprise Singapore for the unrecovered amount in proportion to the risk-share undertaken by the government.
For example, if a business takes a loan of SGD$1 million and defaults on payments, the PFIs will first follow their usual commercial recovery procedure. Assuming that the PFI is only able to recover SGD$500,000 under its usual commercial recovery procedure, the PFI will then make a claim of SGD$450,000 (equivalent to 90% of SGD$500,000) from Enterprise Singapore.
Reasons Companies Might Consider Taking Up The Temporary Bridging Loan
The Temporary Bridging Loan Programme provides low-cost working capital loans for businesses during a period when they are likely to need it most. While long-term profits are important to build a sustainable business, it’s short-term cash flow that would determine if a company will survive.
Temporary Bridging Loan can be used for different business expenses that your company needs to pay for during this period.
Expenses could include paying salaries to your workers to retain and support them during this challenging period, or other short-term expenses for the company to continue operating. This includes rental, marketing costs and raw materials that are needed for your products.
It’s also worth noting that under the Temporary Bridging Loan Programme, businesses can apply for an up to one-year deferral of principal repayments to help them reduce their monthly cash flow during the first year of the loan tenor, subject to the approval of the PFIs.
Criteria To Apply For Temporary Bridging Loan
As a government-assisted loan, only Singapore companies which fulfil the following requirements are eligible to apply for this loan:
- At least 30% of shares held by Singaporeans or Permanent Residents; and
- Registered and physically present in Singapore.
Besides meeting the eligibility criteria prescribed by the Singapore government, eligible businesses will also be subject to the standard credit assessment criteria set in place by the banks that are disbursing these loans.
While no collateral is required, banks will require a 100% Personal Guarantee for the loan. This means that if the business fails to repay the loan, the person who guarantees the loan (usually the founder or a director of the company) is liable to pay the outstanding amount.
For most business owners, you can apply with the bank that you hold a business account with. For example, if you are a business account holder with OCBC, you can apply for the Temporary Bridging Loan through OCBC, and your loan application will be assessed by OCBC.
You are allowed to take up Temporary Bridging Loans with different banks, subject to the overall limit of SGD$5 million.
To further support businesses during this period, OCBC is waiving its loan processing fee for the Temporary Bridging Loan. So, besides repaying the loan principal with interest charged, there are no other fees that businesses will need to pay. To support social distancing measure, you can also apply for the loan online.
Whatever your reasons may be for taking a loan, the Temporary Bridging Loan is likely going to be the lowest-cost source of funding that you can find for your businesses during this period.