3 in 5 Singapore startups unsure of funding options

A majority still relies on conventional fund-raising schemes.

According to the Financing for Startups and Small Businesses Survey by United Overseas Bank (UOB), the majority of startups and small businesses in Singapore do not understand fully the range of alternative funding options available for their early expansion needs.

They are also unclear about how to employ most effectively these options which include venture capital, venture debt, and debt and equity crowdfunding.

Mr Mervyn Koh, Managing Director and Country Head of Business Banking, Singapore, UOB, said that funding is a key factor for business expansion and it is important that startups and small businesses are able to differentiate between the funding options that are available to help them scale up their businesses in the early stages of growth.

While established companies are able to access funding through conventional methods such as bank loans and working capital, startups typically are not able to raise the funds needed as easily. This is because they are still developing their concepts, products and services into viable business models, and as such may not have consistent cash flow to qualify for traditional loans,” said Mr Koh.

The startups and small businesses surveyed said that they did not know from where to obtain advice on the range of funding options available (65 per cent). They also felt that the eligibility criteria for these options were unclear (62 per cent) which made it difficult for them to know if they would qualify. These are in contrast to the straightforward manner of receiving guidance by banks on traditional financing methods.

As a result of their unfamiliarity with financing options, startups and small businesses indicated a preference to rely on the tried and tested funding sources, such as raising their own working capital (43 per cent), government grants (38 per cent) and government-assisted schemes (40 per cent), for their business expansion.

The survey also found that the respondents were unfamiliar with the distinctive features of each of the alternative funding options.

For example, on venture debt, respondents thought that investors needed to be involved in making business decisions (34 per cent). In fact, it is not required for this option.

As for debt crowdfunding, one in four small businesses said that there was no interest payable on the crowdsourced funds. However, this is a misconception as funds raised through debt crowdfunding do attract an interest on the funded amount.

In addition, 23 per cent of businesses polled believed that they would have to give up equity in their business for the crowdsourced debt. This is another misconception as debt crowdfunding does not involve giving up equity.