financial handbook for smes 13apr2007

8/8/2019 Financial Handbook for SMEs 13Apr2007

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act ioncommuni ty oren t repreneursh ip

Financial Hanbookor SMEs

Enterprise Capabilities


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Financial Hanbook or SMEs

Copyright 2007 Action Community or Entrepreneurship, The Association o Banks in Singapore,SPRING Singapore an Stone Forest Consulting Pte Lt

Design and Production byXpress Print Pte Lt

All rights reserved. No part o this publication may be reproduced, stored in a retrieval system or transmitted

in any orm or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior

permission o the copyright owner.

Contents

Forewor by Mr Lee Yi Shyan, Minister o State

or Trae an Inustry, Minister in-charge o

Entrepreneurship an Chairman o Action

Community or Entrepreneurshipt 3

Message rom

The Association o Banks in Singapore (ABS) 4

Message rom Chio Lim Stone Forest 5

Types o Financing

Introduction 7

Your Financing Options 8

Government Financing Schemes 11

Unerstaning the Language o

Financial Institutions

Dierent Viewpoints o the

Entrepreneur and Financial Institution 12

Case Study: Two Dierent Companies

and Two Dierent Outcomes 15

Lessons or Entrepreneurs 20

Managing Working Capital

Cash the Lieline o Any Business 22

Key Elements o Working

Capital Management 22

How to Calculate Your Business

and Trade Cycles 26

Working Out Your Working Capital

Lines or Your Business 28

Managing Capital Expeniture

Case Study: A Precision Engineering

Services Company which Invested in

a Large Factory 30

Lessons or Entrepreneurs 34

Overview o Key Services an Financing

Proucts o Financial Institutions

in Singapore 36

Glossary o Financial Terms 38


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3

FOREWORd

Today, Singapore is home to many dynamic and vibrant smalland medium enterprises (SMEs). SMEs account or over halo the jobs in Singapore, and contribute more than 40% oour GDP.

With the economy on the upturn, many o our SMEs are riding

on the wave o economic expansion and growing their businessoperations. Access to capital will allow them to urther exploitstrategic opportunities.

To enhance their chances o success in raising the necessarycapital, SMEs need to strive to upgrade their nancialmanagement capabilities and improve their creditworthiness inthe eyes o potential lenders and nanciers.

Sound nancial management will not only make an SME more attractive to lenders andinvestors, it will also ree up cash resources within the business and reduce the reliance onexternal nancing.

I hope this handbook will serve as a useul guide or SMEs to strengthen their nancialcapabilities and boost their competitiveness in todays global business environment.

MR LEE YI SHYANMinister o State, Trade and IndustryMinister in-charge o EntrepreneurshipChairman o Action Community or Entrepreneurship


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7

TYPES OF FINANCING

IntrouctionSmall and medium enterprises (SMEs) are an important part o Singapores economy. They

comprise 99% o all the est ablishments and employ more than hal o the workorce.

The SME criteria or schemes administered by SPRING Singapore as ollows:-

l At least 30% local equity;

l Fixed assets not exceeding S$15 million; and

l Employment size not exceeding 200 or services companies

In recent years, nancial institutions in Singapore are placing greater emphasis on meeting the

nancing needs o SMEs.

Each nancial institution has its own denition o SMEs and its own dedicated relationship

managers, innovative treasury and lending products, and personalised services to cater to the

needs o this segment. These services and product inormation are available on the websites

o the nancial institutions.

Types o Financing


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8

Types o Financing

Sources o Finance -

Commercial Banks an Finance Companies

Start-up Growth Internationalisation

Has limited access to

commercial banks. Financecompanies are unlikely to

provide unding as they are

required by law to provide

loans on a secured basis.

Financial institutions usually

provide unsecured acilities

up to a certain amount. The

company is required to provide

six months o bank statements

to show the requency o

business activities.

For companies with conrmed

orders, it is possible or

nancial institutions to oer

letters o credit and trust

receipt acilities to enable them

to purchase raw materials tocomplete the sale.

Financial institutions oer

many products to help growingcompanies in these areas:

Purchases: Letters o credit

and trust receipts

Sales: Bills discounting and

actoring

Fixed assets: Loans

The type o acility, quantum

and condition o loans vary

with each SMEs balance sheet

position and credit risk rating.

Finance companies provide

such acilities on a secured

basis.

Financial institutions oer many

avenues to help establishedcompanies internationalise

their operations. For example,

Project nancing acilities:

These are term loans

structured over the tenure

o the project.

Syndicated loans: These

are structured loans

provided by participating

nancial institutions to

co-share the risk.

Restrictions on nance

companies activities may

prevent them rom providing

structured products and

syndicated loans.

Your Financing OptionsGenerally, most entrepreneurs rely on a combination o debt and equity nancing to grow their

business. Debt nancing reers to interest-bearing loans that have to be repaid over a period o

time. Equity nancing reers to share capital rom investors who are looking at capital gains and

possibly dividend returns. There are also hybrid products in the orm o convertible loans that

allow the holder to convert to equity later.

The ollowing tables provide a summary o the nancing sources and options available to a

business at dierent growth phases.

Stages o a Companys development


Is completing or has completed

product development and

initial marketing.

Has some revenue and is

building customer base.

Not yet protable.

Requires unding to sustain

development.

Is a protable business with

stable customer base.

Requires more capital to

support growing sales. The

unds are typically used to

increase production capacity,

strengthen branding and

corporatise critical business

processes.

Has track record o protability.

Is successul in the local

market.

Exploring overseas

opportunities through joint

ventures, mergers and

acquisitions, and strategic

alliances with overseas

partners.

Types o Financing


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10 11

Types o Financing

Sources o Finance - Corporate an Angel Investors


Mostly angel investors. These

are typically successul

businessmen with an appetiteor start-up companies with

higher risk.

Corporate investors keen to

provide new monies usually

demand an equity stake in thecompany.

Companies can enter joint

ventures with listed corporate

investors to co-share therisks and rewards o overseas

ventures.

Sources o Finance - Stock Exchange an Traing Platorms


Over-the-Counter (OTC)

Capital

Phillip Securities Pte Ltd

recently launched the rst

OTC trading platorm in

Singapore, so SMEs can now

raise up to $5 million without

issuing a prospectus.

Alternative Investment

Market (AIM)

Companies need to appoint

a nominated advisor to help

raise new monies through this

platorm ound on the London

Stock Exchange.

Initial Public Oering (IPO)

Companies can apply or

listing in Singapore or

elsewhere as long as they

satisy the listing requirements.

For SESDAQ listing in

Singapore, although

companies do not need

to have a track record o

protability, they have to

achieve a minimum prot ater

tax o S$2 million to get an

underwriter to sponsor the

listing.

Initial Public Oering (IPO)

Unlisted companies can

apply or listing on the stock

exchanges in Singapore or

elsewhere.

Bons an Commercial Papers

More established companies

can issue bonds and commercial

papers to raise monies.

Share Placement

an Rights Issue

Companies can raise unds

either through share placement

exercises to new shareholders

or rights issue exercises to

existing shareholders.

Types o Financing

Government Financing SchemesThe Government plays a key role in supporting local businesses and their nancing requirements.

This table summarises the schemes or SMEs:

FinancingSchemes

Stage

Start-Up Growth Internationalisation

Equity Start-up Enterprise

Development Scheme

(SEEDS)

Business Angels

Scheme (BAS)

Growth Financing

Programme (GFP)

Growth Financing

Programme (GFP)

Enterprise Fund

Debt Micro Loan

Programme

Local Enterprise

Finance Scheme

(LEFS)

Loan Insurance

Scheme (LIS)

Internationalisation

Finance Scheme

Loan Insurance

Scheme (LIS)

Trade Credit Insurance

For more details, please visit EnterpriseOne atwww.business.gov.sg.

Choosing the right nancing option is critical to a business. Entrepreneurs need to plan

careully, weigh the pros and cons o the various options, and choose those that are most

suited to their stage o growth.

As unds provided by nancial institutions are integral to the overall unding structure o an

SME, it is important to understand the language o nancial institutions. Read on to learn about

the common evaluation criteria that most nancial institutions use or approving loans.


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12

UNdERSTANdING THE LANGUAGEOF FINANCIAL INSTITUTIONS

dierent Viewpoints o the Entrepreneur anFinancial InstitutionTo the entrepreneur, risk-taking and capitalising on opportunities to generate more prots

are the name o the game. The nancial institutions core business is lending to sustainable

businesses that are able to service the interest and repayment o capital. As such, eective risk

management and monitoring are critical. In making the lending decision, nancial institutions

evaluate the sustainability o the business model, the integrity and track records o the borrowers

and also consider the value o the assets oered by the borrowers to secure the loans.

These two dierent perspectives result in dierences in interpreting the nancial perormance

o a business. The table below gives a sample o the dierent viewpoints o the entrepreneur

and the nancial institution in interpreting and analysing the nancial perormance o a company

that has achieved high revenue growth and return on equity.

Financial

PerormanceEntrepreneurs Perspective Financial Institutions Perspective

Revenue doubled

rom $30 million

to $60 million

The revenue growth came rom new

sales to emerging countries. I made a

high prot margin o 20% or sales to

emerging markets, compared to 8%

or sales to traditional, established

markets.

Sales to emerging markets carry a

higher deault risk as they are made

on open account basis with a long

credit term o 90 days. The laws in

certain emerging countries are weak

in protecting creditors interests,

making it harder to enorce collection.

Average stock

holding period

increased rom 60

days to 120 days

Bulk purchases reduce procurement

cost and improve prots by 5%. The

longer stock holding period is not a

concern as these stocks can be sold

within six months.

These stocks are nanced by

short-term bank borrowings that have

to be repaid within 120 days rom the

date o purchase. I you are unable

to sell and collect rom customers

within120 days, you will deault on

repaying these short-term acilities.

Types of FinancingTypes o Financing 13

Understanding the Language o Financial Institutions

13


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14 15


Financial

PerormanceEntrepreneurs Perspective Financial Institutions Perspective

Average return on

equity at 20% per

annum based on

$2-million prots

and $10-million

shareholders und

I have done better than many

listed companies and increased

shareholder value. The bank should

lend me more unds to generate

higher return on equity.

Although your return on equity

is 20% per annum, your total

liabilities are 4 times more than the

shareholders und. This, coupled

with the collection risk rom

emerging markets and the longer

stock holding period, increases your

risk rating. The bank will not be able

to lend you more monies. Instead

we are looking at reducing the

current acilities.

The example above clearly shows that nancial institutions are very ocused on identiying the

risk o non-payment o loans. Financial institutions take the ollowing into account:

Quality o the

revenue and

debtors

Revenue earned and supported by buyers letter o credit carries lower

risk than revenue made on open account basis.

Revenue on open account basis and mitigated by credit insurance

policies carries lower risk than those not covered by credit insurance.

Overseas debtors in developing and emerging countries carry higher risk

than those rom developed countries.

Asset conversion

cycle

This measures the number o days that the company takes to convert

purchases into sales and collections. The longer the cycle, the higher the

deault risk.

The stock turnover, debtors turnover rate and creditors turnover rate

are commonly used indicators to understand and measure the asset

conversion cycle.

Ability to

repay debts

and service

interest

The bank uses these ormulas to ascertain the debt servicing capability o

the company:

1) Earnings Beore Interest, Taxes, depreciation an Amortisation (EBITdA)

Annual Interest + Principal Loan Repayments

an

2) Cash Flow From OperationsAnnual Interest + Principal Loan Repayments

A nancial ratio o more than 1 indicates that the company is able to generate

sucient prots (cash fows rom operating activities) to service loan repayments

and interest.

I the nancial institution assesses that the risk o non-payment is high, it will typically ask or

security (such as properties, cash deposits). Without sucient security value to mitigate the risk

o deault, it is unlikely that the nancial institution will increase the exposure.

CASE STUdY:Two dierent Companies an Two dierent OutcomesThe table below shows the nancial perormance o two entrepreneurs in the same business

o distributing precious metals.

In S$ millionRevenue Focuse

Company (RF Coy)

Cash Focuse Company

(CF Coy)

Revenue $120 $60

EBITDA margin 4.0% 6.6%

EBITDA $4.8 $4.0

Interest expense per year at 6% ($2.4) ($1.2)

(Increase)/Decrease in net receivables ($6.4) $0.2

Cash generated (used in)/rom operations ($4.0) $3.0

Cash (used in) investing activities ($4.0) ($4.0)

Financing requirements ($8.0) ($1.0)

Existing banking acilities $40 $20



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Scenario The Revenue Focused Company (RF Coy) was able to distribute and generate sales o $120

million through its regional distributors and agents.

The Cash Focused Company (CF Coy) generated sales o $60 million through direct selling

methods to reach customers in the region.

Both intend to invest in a $4-million acility to buy equipment to provide engineering services

to its customers.

Both wanted a 3-year term loan o $4 million rom ABC Bank to nance their expansion

plans.

Outcome RF Coys application was rejected. ABC Bank also decided to reduce its letter o credit/trust

receipt acilities rom $40 million to $30 million. RF Coy was orced to scale down its sales

and eventually went into nancial diculty.

CF Coy succeeded in getting the term loan or its new business. ABC Bank also oered to

provide a revolving credit line o $2 million.

Why ABC Bank i not len to RF CoyABC Banks main concern was whether this new business would be able to generate earnings

and cash fows to repay the new term loan. There was no guarantee that this new venture

into engineering services would succeed. Hence ABC Bank considered i the existing core

business could provide the cash to repay the new term loan.


17


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These are the key nancial ratios that ABC Bank looked at:

Interest

coverage ratio

measures the

strength o

the business

to service

its interest

obligations


Annual Interest

RF Coys current interest coverage ratio is 2, while CF Coys is 3.3. CF Coy is in a

better position to service its interest expenses.

2) Cash Flow From Operations Beore Interest Payment

Annual Interest

RF Coys negative cash rom operations o S$4 million worries the bank. Although

it has a positive EBITDA, it is not able to collect aster and its net receivables have

increased by $6.4 million mainly rom its regional distributors and agents.

CF Coy is in a better position as it does not have a build-up o receivables and

is able to generate positive cash fow rom operations o S$3 million

Ability to

repay debts


Annual Interest + Principal Loan Repayments

2) Cash Flow From Operations

Principal Loan Repayments

Financial institutions usually examine the cash fow statements to conrm the

reliability o using EBITDA as a measure o the companys ability to repay debts.

In RF Coys situation, ABC Bank ound that RF Coy would not be able to generate

sucient EBITDA to service the new term loan and interest. Its current negative

cash fow rom operations conrms that RF Coy is heading towards a liquidity trap.

In CF Coys situation, ABC Bank ound that CF Coy is cash fow positive and has a

healthy cash position to service new loans.


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In RF Coys application, the negative cash fow rom operations o $4.4 million, the build-up o

its receivables position, mainly due to its overseas distributors and agents, and its weak interest

cover alarmed ABC Bank.

In CF Coys case, it secured the term loan or its new business. ABC Bank was comortable with

the prudent management style o CF Coy and was prepared to provide more loans to CF Coy.

Lessons or EntrepreneursMost SME entrepreneurs keep track o their revenue and prots by looking at their prot and

loss statement. As long as it shows a prot, entrepreneurs usually assume that prot is the

same as cash, but that may not be true.

It is critical or entrepreneurs to scrutinise their cash fow at all times. Read on to learn how you

can better manage your cash fow.


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To manage working capital eectively, you need to manage the 4 Cs. You can do this by:

Collecting payment aster than the credit terms provided by your suppliers. This way, you

will not need to use your credit acilities to pay o your suppliers rst beore collections

come in.

Reducing inventory levels. This will reduce your need or credit acilities and cash, andresult in bank interest savings. The operating cash fow can be used to boost sales or

or investment.

Negotiating or a longer credit period and increased credit terms with your suppliers.

This will decrease reliance on your principal bankers.

Any o the above will improve the management o your working capital.

MANAGING WORKING CAPITAL

Cash - the Lieline o Any BusinessCash fow is undeniably the lieline o every business regardless o its stage o development.

Managing a sustainable business in a volatile business environment requires adequate cash

fow and unding. Most businesses ail because entrepreneurs do not manage their working

capital well.

It is important to know how much money you need to run your type o business as the business

cycle o each business is unique, with its own sales trends, stock holding period as well as

payment and collection patterns. Each cycle starts rom the day you receive an order rom your

customers and ends when you collect cash rom your customers.

Key Elements o Working Capital ManagementThere are two elements in the business cycle that use cash - inventory (stocks and work-in-

progress) and receivables (money debtors owe you).

The main sources o your working capital are the 4 Cs:

Collections (when debtors pay you)

Credit terms (when your creditors provide credit)

Credit acilities (where your banks provide you with letters o credit, actoring lines, trust

receipt acilities)

Cash (when you raise capital)


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In the example given, this company has a business cycle o 240 days rom the time it places

an order or raw materials to the time it collects payment rom customers. The suppliers trade

terms is 60 days but by then, the company has just received the materials rom its overseas

supplier. It has to use the trade acilities rom nancial institutions to pay the supplier and

extend the credit period by 60 days. By that time, the company would have just completed

abrication and installation. We can see that this business has a unding gap o 75 days, whichhas to be met by its internal cash resources. Alternatively, it can actor its invoices to the bank

to bridge this unding gap o 75 days.

We encourage you to plot your business and trade cycles and share these with your bankers

who can structure appropriate working capital acilities or your entire business cycle.

How to Calculate Your Business an Trae CyclesTo determine the number o working capital cycle days required to run your business, you need

to plot your business and trade cycles.


Business Cycle

You issue purchase

order to supplier

Supplier ships goods

rom port o origin

Goods reach suppliers

destination port

Raw materials in

holding

Fabrication &

installation

Trae Cycle

Supplier receives

letter o credit with

60-day term

Supplier negotiates

letter o credit or

payment

Supplier receives

payment

Trust Receipt

Financing

Bank issues letter o

credit

Bank accepts letter o

credit

Bank pays supplier

Bank receives

payment

Customer receives

invoice

You collect payment

rom customer

FUNdING GAP

OF 75 dAYS

45 days

60 days

30 days

30 days

15 days

60 days

45 days

60 days60 days

60 days

DAY 0

DAY 45

DAY 105

DAY 135

DAY 165

DAY 180

DAY 240

45 days


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28 Managing Working Capital 29

The table above shows a business with projected sales o $25 million and projected purchase

requirement o $20 million. The business cycle or sales to Europe is 195 days, while the cycle

or Asia Pacic takes 150 days.

The trade lines required or sales to Europe are worked out by dividing the annual purchases

o $10 million by 360 days and multiplying by 195 days. The credit acilities required rom

nancial institutions are thereore $5.4 million. Using the same calculation method, the trade

lines required or sales to Asia Pacic are $4.2 million. The current trade lines available are $4

million (nancial institutions and creditors), hence another $5.6 million is needed to support

growth in new sales.

By doing a simple calculation like this, you can show your bankers why you need to increase

your credit acilities and how you plan to use the new acilities.


Working Out Your Working Capital Lines or Your Business

(expressed in S$ million) Europe Asia Pacic Total

Sales $12.5 $12.5 $25.0

Purchases required $10.0 $10.0 $20.0

Business cycle (days) 195 150

Trade lines required $5.4 $4.2 $9.6

Available trade lines $4.0

Additional trade lines required $5.6


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MANAGING CAPITAL EXPENdITURE

Two o the greatest challenges acing growing businesses are capacity management and capital

budgeting. Capital investments are long-term investments that use uture cash fows to repay

bank borrowings taken to nance them. A wrong decision can be atal to the company. Many

companies do not carry out sucient evaluation when making capital budgeting decisions.

The ollowing case study provides many useul lessons or businesses that are thinking oinvesting in new premises and new equipment.

CASE STUdY:A Precision Engineering Services Company which Investein a Large FactoryThe entrepreneur decided to invest in a new actory or the ollowing reasons:

Business was so good that he had to turn away customers.

Existing actory space was too small to cater or uture expansion.

Jurong Town Corporation (JTC) oered a new place ve times the size o his current

actory. He did not require such large premises but he thought it was an attractive oer

as he could sublet the unused space.

His principal bankers oered to nance the entire construction cost o $12 million over

2.5 years, which he could repay over 10 years.

His current EBITDA was $2 million, which he expected to grow to $4 million with the new

premises. The annual loan repayment and interest is $1.7 million. He thought he would

have no problem servicing the term loan as his uture E BITDA o $4 million provides 2.3times cover or the amount he has to service.


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Managing Capital Expenditure

For the reasons given, the entrepreneur went ahead with the construction. In the meantime, he

took up a short-term lease o 3 years and purchased new equipment to cope with the increase

in orders. Three years later, the company shited to the new premises. While its s ales increased

2-old, EBITDA remained at $2 million and the company struggled to pay o the $12-million

term loan. What went wrong?

The entrepreneur made the ollowing mistakes:

He was in the business o providing engineering services, which require skilled engineers

and production equipment, not actory premises. The move to take up a short-term

lease and lease new equipment to cope with more orders would have addressed his

immediate needs. The decision to invest in the new JTC premises was hence not urgent

nor relevant. The act that the oer rom JTC was attractive and he could sublet the

unused space was also irrelevant.

He did not need ve times more space than his current premises. He paid the high

cost o construction, which did not benet his core business. The additional burden o

repaying the $12-million bank loan ate into his uture operating cash fow.

He also did not consider the high xed operating costs (such as ground rent, utilities

bills, property taxes, etc.) that came with a big building. This meant that he needed a

higher sales volume to cover his xed costs. He lost his fexibility to choose the right

customers and was orced to ll his large capacity with orders that made lower or no

prot margins. The combination o lower prot margin and higher operating cost caused

his EBITDA to deteriorate even though sales increased.


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34 Managing Capital Expenditure 35

Lessons or EntrepreneursThe case study highlights the importance o ocusing on the objective as well as business and

revenue models o the business. When deciding whether to proceed with a capital investment,

ask these questions:

How will this capital investment strengthen my competitive edge against my

competitors?

How will this capital investment create more value or my customers who will be willing

to pay or the additional value and benets that I can generate?

How will this capital investment change my xed operating cost structure and what is my

new breakeven sales target or the higher xed operating cost structure?

What kind o revenue and earnings should I expect rom this capital investment?

Most entrepreneurs do not spend enough time to consider the questions above. Instead,

they dedicate more time to raising unds or the capital expenditure. It is important that

these questions are answered rst beore considering the various nancing options or the

capital expenditure.



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OVERVIEW OF KEY SERVICES ANd FINANCING PROdUCTS OF F INANCIAL INSTITUTIONS IN SINGAPORE

Name oFinancial

Institution

ABN AMRO N.V. Citigroup Corporate anInvestment Banking

Commercial Banking Group

dBS Bank Lt HSBC Lt MayBank Oversea-Chinese Banking

Corporation Lt

R HB B an k U ni te Ov er seasBank Lt

StanarChartere Bank

Orix LeasingSingapore

Limite

I FS C ap it al Limi te GE C om me rc ia l F in an ce Hon g L eo ngFinance Lt

Sing Investments &Finance Lt

Website www.abnamro.

com

www.citibank.com/singapore/

corporate

www.dbs .com www.hsbc.com.sg/

hsbc.commercial

www.maybank2u.

com.sg

www.ocbc.com www. rhbbank.

com.sg

www.uobgroup.com www.

standardchartered.

com.sg

www.ol s.com.sg www.i scapi ta l. com.sg www.gecommercia lnance.com.sg www.hl .com.sg www.si . com.sg

Contact Inormation Tel: 6518 8888

Fax: 6518 6036

Tel: 6328 5500;

Fax: 63285887;

Email:

[email protected]

Tel:

1800 222 2200

Tel: 1800 216 9008 Tel:

1800 629 2265

Tel: 1800 538 1111 Tel: 6323 2001/

6320 0663

UOB Corporate

Call Centre:

1800 22 66 121

SME Banking

Hotline:

1800 743 3000

Tel: 6339 3622

(Ms Sharon Lee)

Tel: 6270 7711

Email: marketg@

iscapital.com.sg

Tel: 6226 3822 Customer Service

Centre: 6416 2777

Email:

customerservice@hl.

com.sg

Head Oce: 6305 0300

Ang Mo Kio: 6456 0588

Bedok: 6445 9596

Clementi: 6775 7248

Branches 5 3 84 11 21 59 7 62 19 NA 1 1 28 4

Prime Lending

Rate*

5 .5 % ( SGD) 5 .5 % p .a . ( SGD) ;

8.25% p.a. (USD)

4.25% 5.5% p.a 5.25% p.a. 5.00% p.a. 5.70% 5.0% (SGD)

8.25% (USD)

5.75% p.a. NA NA NA 6.875% 5.33%

FINANCING FACILITIES

Overdrat

Import Trade

Export Trade

Bills Factoring

Bridging Loan

Term Loan

Hire Purchase Loan (or

Commercial

Auto Loans)

OTHER SERVICES

Insurance

Treasury

Corporate Cards

Electronic or

Internet Banking

Capital Markets

* Accurate at time o printing and subject to changes


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38

GLOSSARY OF FINANCIAL TERMS

List o Terms defnition

AlternativeInvestment Market(AIM)

The London Stock Exchanges global market or smaller, growingcompanies started in 1995.

Asset conversioncycle

The number o days a business takes to convert purchases into salesand collections.

Bills discounting A acility granted by banks to selected customers with good nancialstanding and integrity to nance their import and export tradetransactions. The nancing period is usually 30 to 90 days.

Bonds A cer ticate o debt i ssued to raise unds. Bonds t ypica ll y pay a xedrate o interest and are repayable at a xed date.

Business AngelsScheme (BAS)

A S$30-million und administered by SEEDS Capital Pte Ltd, asubsidiary o the Economic Development Board, that aims to stimulateentrepreneurship and technopreneurship in Singapore.

Capital budgeting The process o managing capital assets and planning uture expenditureon capital assets.

Capital investments Funds invested by a business in its capital assets that are anticipatedto be used beore being replaced. Capital investments are generallysignicant business expenses, requiring long-term planning andnancing.

Cash generatedrom operations

Cash generated rom the operating activities o the business.

Commercial papers Debt instruments issued by established corporations to meet short-term nancing needs. Such instruments are unsecured and the maturityperiod ranges rom 2 to 270 days.

Convertible loans A loan with a provision allowing it to be converted to equity within aspecic time rame.

Convertiblepreerence shares

Preerence equity shares issued by a business that include a provisionallowing them to be converted to ordinary equity shares ater a specictime rame.

Creditors orAccounts payable

Suppliers the company owes money to, usually or services or goodssupplied.


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40

Glossary o Financial Terms


Creditorsturnover rate

A short-term liquidity measure used to quantiy the rate at which abusiness pays o its suppliers.

Debt nancing The money that you borrow to nance a business .

Debtors orAccounts receivable

Customers who owe the company money, usually or services orgoods supplied.

Debtors turnoverrate

A short-term liquidity measure used to quantiy the rate at which abusiness receives payment rom customers.

Deault risk orRisk o deault

The risk o loss due to non-payment by the borrower.

EBITDA The earnings beore interest, taxes , depreciat ion and amort isat ion. I t is the net cash infow rom operating activities, beore working capitalrequirements are taken into account.

EBITDA margin A measure o operating perormance. It is calculated by dividing EBITDAby sales and is usually expressed as a percentage.

Enterprise Fund Created and sponsored by International Enterprise Singapore and HongLeong Finance to provide proven and growing asset-light and traditionalbusinesses with nancial solutions that are customised to their specicunding requirements. By injecting capital into growing Singapore-basedbusinesses, the Enterprise Fund hopes to enable them to grow at aaster pace and become successul international businesses.

The Enterprise Fund is independently managed by Crest Capital PartnersLtd.

Equity nancing The issuance o ordinary shares to raise money or a business.

Factoring Selling the interest in the accounts receivable or invoices to a nancialinstitution at a small discount. It is sometimes called accounts receivablenancing. Factoring helps a company speed up its cash fow so that itcan more readily pay its current obligations and grow.


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Micro LoanProgramme

Oered under the Local Enterprise Finance Scheme, the micro loanprovides nancing o up to $50,000 or smaller businesses with lessthan 10 employees.

Nominated advisor(NOMAD) A company that has been approved as a nominated advisor or theAlternative Investment Market (AIM) by the London Stock Exchange.The primary responsibility o a NOMAD is to help a new company gainadmission to the AIM and provide advice to avoid delisting.

Prot margin A measure o a companys protability. It is calculated by dividing netprot by sales and is usually expressed as a percentage.

Return on equity(ROE)

A measure o the return on each dollar o shareholder investment. It iscalculated by dividing net prot by equity and is usually expressed asa percentage.

Start-up EnterpriseDevelopmentScheme (SEEDS)

An equity nancing programme designed to provide capital orinnovative start-ups. The Government will match every dollar raised bythe start-up rom private third-party investor(s), up to a maximum oS$300,000.

Stock turnover A measure o inventory perormance to show how ast stock is convertedrom purchases to sales. It is calculated by dividing stock level by costo sales x 365 days.

Syndicated loan A large loan provided to a borrower by a group o banks that worktogether. There is usually one lead bank that provides a small percentageo the loan and parcels the rest to other banks.

Term loan A loan or a xed period o more than one year and repayable by regularinstalments.

ORIX Leasing Singapore Limited

331 North Bridge Road

#19-01/06 Odeon Towers

Singapore 188720Telephone: 6339-3622

Fax: 6339-3966

http://www.ols.com.sgORIX Leasing Singapore Limited (formerly known as OrientLeasing Singapore Limited) was established in Sep 1972. Theshareholders of ORIX Leasing Singapore Limited (ORIX) are: ORIXCorporation, Japan (50%) DBS Bank Ltd (30%) and United OverseasBank Limited (20%).

Since its inception, ORIX has been actively providing financial assistancemainly to small and medium-sized enterprises (SMEs) from variousindustries. ORIXs financial services include asset-based financing,cross-border financing and receivables financing.

In April 2002, ORIX was admitted by the Standards, Productivity &Innovation Board (SPRING Singapore) as a Participating FinancialInstitution (PFI) of the Local Enterprise Finance Scheme (LEFS), whichoffers low-cost fixed interest rates to meet the financing needs of theSMEs.

ORIXs policy of maintaining a broad financial base and a pool ofexperienced staff who know their business as well as yours, ensures thatORIX will stay well ahead of the time.

At ORIX, we make things simple for you. We believe in giving you ourpersonalized service and will take time to listen, discuss and understandyour needs.


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Trade CreditInsurance (TCI)

Developed by International Enterprise Singapore together with ECICSLtd and QBE Insurance to oer trade credit insurance at very attractivepremium rates. By pooling demand or trade credit insurance, therebygenerating economies o scale and diversication o risks, the TCI

programme is able to oer premium rates normally available only tocompanies with signicant trade volumes.

Working capital The amount o capital or current assets available or operating thebusiness. It is calculated by subtracting current liabilities rom currentassets.


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For more inormation on government nancing schemes or SMEs,

please contactEnterpriseOne at:

Website: www.business.gov.sg

Email: [email protected]: (65) 65-688 1800

Operating hours: 8.30 a.m - 6.00 p.m (Mon - Thu)

8.30 a.m - 5.30 p.m (Fri)


For more inormation on government nancing schemes or SMEs,

please contactEnterpriseOne at:

Website: www.business.gov.sg

Email: [email protected]: (65) 688 1800

Operating hours: 8.30 a.m. - 6.00 p.m. (Mon - Thu)

8.30 a.m. - 5.30 p.m. (Fri)


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SPRING Singapore

financial handbook for smes 13apr2007

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