According to Linkflow Capital, a leading SME loan consultancy in Singapore, small and medium-sized enterprises (SMEs) faced significantly tighter financing conditions in 2024, with borrowing costs surging even as access to larger loan amounts all but evaporated.
The consultancy's SME Financing Accessibility Survey, found that the average borrowing cost for SMEs rose to 8.47% per annum- the highest level in recent years-, based on data compiled from over 2,200 unique users of its SME loan comparison platform.
The research points to a segment under pressure, as elevated interest rates, shrinking loan sizes, and more selective lending practices combined to squeeze business owners seeking capital.
It notes that SMEs continue to operate in a challenging financing landscape, marked by higher costs of capital and reduced access to meaningful funding. It adds that the squeeze is especially pronounced for companies requiring larger loans to fund expansion or manage cash flow.
In particular, SMEs looking for substantial financing appear to be the hardest hit. Loans above $300,000 made up just 3% of approved loans in 2024, compared to 10% a year earlier.
Notably, Linkflow Capital's platform recorded zero approvals for loans exceeding $500,000 in 2024- a sharp signal that credit appetite among lenders has deteriorated at the higher end of the spectrum.
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While overall loan accessibility has tightened, there have also been notable shifts in the lending landscape.
Local banks continued to dominate, originating 59% of loans via the platform. However, foreign banks have expanded their share significantly to 26%, up from 19% in 2023.
In contrast, digital banks, once hailed as a key source of alternative financing, saw their share of loan providing drop to just 8%, down from 17% the previous year.
"SMEs were caught in a difficult bind in 2024- needing capital to navigate rising operational costs but facing the highest borrowing rates we've seen in years and finding it much harder to secure larger loan amounts required for expansion," says Benjamin Teo, spokesperson for Linkflow Capital.
He adds: "This reflects increased lender caution driven by higher SME debt servicing ratios and the unwinding of earlier government support schemes."
Early signs of relief?
There may be some light at the end of the tunnel. The 3-month SORA (Singapore Overnight Rate Average), a key benchmark for business lending, has fallen from 3.03% in January to 2.55% by April 2025.
However, Linkflow Capital cautions that lending rates for SMEs are likely to remain elevated in the near term, with any reductions possibly materializing only from the third quarter of 2025 onwards.
Government support still vital
Against this backdrop, policy measures remain an important backstop. Announced during Budget 2024, the permanent increase in the SME Working Capital Loan cap to $500,000 is seen as a timely move to support enterprises navigating this tight credit cycle.
Despite this, cashflow pressures are still intensifying.
Teo concludes: "Given Singapore's heavy trade exposure, with trade volumes three times gross domestic product (GDP), SMEs remain vulnerable to external shocks like the US-China trade war. Pre-emptive financing planning and maintaining liquidity buffers will be crucial to navigating the uncertain quarters ahead."
