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Advantages of consulting CFO services for Setting up of Business Entity in Singapore

We are assuming that if you are reading this, you intend to either extend your wings and open a branch in Singapore or set up a new business in Singapore itself. At IBS we, help you go through the procedures for the aforementioned in a systematic and rather hasslefree manner.Since incorporating a business in Singapore requires an in-depth understanding of the market scenario,Incorporation Advisory Services becomes a must.

The following are the advantages of consulting CFO services: Cost saving: When you are starting up, you have to make sure you optimize your expenses. The best way is to curtail the expenses by spending on limited services. For example, hiring full time accountants or lawyers will cost you their salaries for the whole year. Whereas, consulting CFO services will make you pay for a specific time and service. IBS is one of the best Business structuring and incorporation services in that case. Effortless setup: CFO services are specialised in helping you going through the legal norms and procedures of setting up a company or a new branch. They have it all organised in a very convenient sequence for you to save time and money so that you get in action as soon as possible. Preparing strategies: CFO services provide reliable strategies with extensive market study and research with the help of their business analysts to help you take the right step to avoid incurring unnecessary losses. Productivity: CFO services also have the capability to train the members of organisation to be more productive in case they find their productivity low or not as per company standards.

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Things to remember while setting up of Business Entity in Singapore

Being one of the center hubs for many enterprises across the wide range of conventional and modern industries, Singapore always tops the chart among other dominions in terms of political stability, economic competitiveness, transparency of regulations and various other parameters that need to be taken into consideration while establishing and growing of a business entity.

The legal setting lets a variety of business edifices or legal entities content the diverse requirements of business owners. It is a crucial task for entrepreneurs to choose the right type of entity. This mission-critical decision will enable the primary issues that include owner’s liability, business transferability, business financing as well as the tax and compliance.

The various types of entities available in Singapore include Sole Proprietorships and General Partners, Limited Liability Partners (LPPs), Limited Partners (LPs) and Companies. So if you plan on setting up a business entity in Singapore you need to keep in mind the following things.

Sole Proprietorships – This is the most common structure and one of the most popular entities. In this type, there is single owner hence the name sole proprietorship. There is no legal veil that distinguishes the business from its owner. Annual filing is exempted in sole proprietorships.

Limited Liability Partners (LLPs) – LLPs type of entity integrates the combined features of Proprietorship and Companies. It is a legal body that can hold property and even hold the right to sue and can be sued too. The partners will be taxed on their personal income tax rate from their share of income from LLP.

Limited Partners (LPs) – This type is very much similar to the general partners, where there is no limit for having the number of partners. The partners are not personally liable instead it depends upon the number of their contributions. The limited partners are not authorized to take an active role in business management.

Companies – In Singapore, this type is also one of the most commonly used entity. The shareholder is not liable for the debts of the company. They require the filing of financial statements with ACRA.  The company benefits from a Special tax of flat 17%.

There are various companies in Singapore that offer advisory services which include financial reporting services, registrations services, and incorporation advisory services that enables you to choose the right type of business entity. Like our Facebook page and remain updated with us on new business things.

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Advantages of setting up business in Singapore

Setting up a business entity in Singapore is one of the best decision you will ever take. Singapore is enthused about entrepreneurs and each year more than 5000 start-ups are formed in Singapore. It is the corporate hub of Asia and a country that entrepreneurs love to work in. Following reasons will strengthen your decision to incorporate business in Singapore.

Ample of funding opportunity

Singapore loves and respects entrepreneurs and there are ample of funding opportunity available to those who wish to set a business entity in Singapore. From Government to private companies, funds are available generously if you have a great business plan. SPRING, IE SINGAPORE, IDA, etc. have multiple grants and funding for business. Mid- sized firms, too, have an access to lot of government assistance like SEEDS to help them grow and expand.  

Safe economy

The best gem of Singaporean economy is its investment environment. Registration systems, too, are easy and straightforward. The government makes continuous efforts to train local labour in sectors of finance and technology. A number of incorporation advisory services are available in Singapore for you to start smoothly and safely.

Enforceable Legal System

Singapore is strict and unbiased about its law and order. The legal system here is absolutely incorruptible. Singapore is one of the safest countries to live and work in. Business laws too, are rigorous and unbiased. Government of Singapore pays special attention to provide safety to those setting up a business entity in its country.

Low Taxes   

Tax Structuring in Singapore is clear and transparent. Corporate tax here is relatively low (17%) in comparison to United States. There are plenty of tax deductions available too like the productivity and innovation credit. More can be found on the website of IRAS.

Now that you know the top benefits of being an entrepreneur in Singapore, contact a good Compliance and Incorporation Advisory Service provider today and get started with turning your dreams to reality.  

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5 Steps to Plan Incorporation of Business in Singapore

With the help of incorporation advisory services, one wishing to set up a business entity in Singapore can do so quite easily. With the Globalisation-Effect, people all over the world are planning to set up their business somewhere else than their current location. What better place than Singapore? Singapore boasts of one of the best cities to live in and to work at. Setting up a start-up here has become easier than ever. We list a few necessary steps to follow when planning start-up in Singapore:

Market study:

This is an obvious first step when planning for a start-up in other country. The market is new and unfamiliar. Take time to get familiar the Singapore market and how it works. It's worth seeking advice from Incorporation advisory service provider in Singapore.

Legal Steps:

Check the Law and Order of the country well before even putting your feet into it. Every country has different sets of laws. Product you are planning to launch might be legal in your country but illegal in Singapore. Have a thorough research of compliance with law.

Financial Planning:

This is a major chunk of your start-up planning. Your finances should be strong and stable. Putting money into wrong task or wrong time can ruin your business. It is best to outsource this to a Financial accounting service provider as they can help you manage your funds effectively.  

Business Structuring:

Next step is to structure your business. This is when you make decisions about your product catalogue, branding, hiring talents, marketing strategies, etc. You have to lay out a rough but detailed plan as to how you will carry out the above tasks.

Incorporating:

Finally, time to put yourself out into the Industry. Once you have balanced all the above categories, you can launch your business officially. Great care should be taken regarding your launch. Remember, your first impression should be impeccable.

To help you with incorporation of your business entity, you can reach out IBS Business Consultancy at http://www.consultibs.sg/. They provide A to Z support in legal, financial and risk management fields of a business. IBS is a one-stop shop for all your start-up needs. With IBS, you can boost your start-up procedure in almost half the time.

What are you waiting for? Live your dreams, set up a business in Singapore!

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Risk Management in Business

Managing financial risks is a risk in itself. One person takes the decision whether a company asset needs to be sold or is the company is in the position to hold the asset though it is depreciating in its value. While managing a business it becomes necessary for the business owners to modify the the patterns of business operations and functions, in order to abide by the circumstances brought up by the market conditions. In such situations, businesses do not have to cross its track and roll over achieving the impossible. What it has to stick is with the purpose of business. Its operation and schedule.

It happens many a times that businesses in such conditions fail to recognise the need of assistance. Business executives who have not dealt with such situations come forward and give away solutions that might change the business outlook in the market in both possibilities - one in a positive way and the other in a negative way. Due to lack of experience in handling such a situation, executive decisions most of the times fail and lead to the businesses incurring heavy losses.

In such times, financial consultancy firms become the only partners who can guarantee businesses with returned gains. Consultancy firms such as IBS Singapore, with its financial reporting services in Singapore report to the businesses its financial status in the market. This service helps the business to identify what necessary actions and precautions are needed to be taken in order to escape financial crisis, when it is prevailing in the market. Apart from this service, the consultancy company also offers registration services in Singapore, for first time businesses to get hold of the business market. IBS Singapore also manages the crucial information security, by the means of providing information management system in Singapore. Business after establishing its foothold in the market, with time needs to grow and expand in its verticals, in all sectors or segments, in which the company IBS Singapore helps by offering businesses its business structuring and incorporation services in Singapore. With these services, the businesses get an all round protection and security in terms of its longevity, profitability and flexibility of growth statistics. For more information regarding financial accounting services, follow us on LinkedIn

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Planning an establishment abroad

After a term, when the business begins to prosper when operating at its motherland, it receives a calling attention from the international market, which compiles it to establish another entity, but in the foreign region. Taking this into consideration, in Indian context, most of businesses try to pull out its foreign and first international entity in Singapore. Singapore is a place which is well recognised and is a hub of international  marketers and business persons. The major reason why Singapore becomes the first choice of business entities, is that laws in Singapore are often smoother and flexible, related to establishment and operation. But it does not mean that nothing shall be done. For anything you do in Life, you must follow a pattern of discipline and for business establishment, you do not want to play a gamble.

Singapore though is a flexible region for operating business there are certain laws and norms that often has lead to winding up business, when it was still running in its early phases. Hence, before planning to establish an entity, a business must learn the needed aspects of the establishment and the requirements that are to be at hand, to avoid any malfunction claim when operating at a bigger level.

So how do you go through? It’s simple. With business consultancy firms, such as IBS Singapore, businesses need not to worry for their business establishment. IBS Singapore helps the business at every stages of evolution which starts right from providing registration services in Singapore, to offering compliance advisory support services in Singapore, at a later stage of development. While these services help business into establishment, other services such as Tax structuring and  advisory services in Singapore help the businesses to understand the tax volume in the foreign region and save them from paying extra dues that are not liable for them to pay. Along with this, IBS Singapore also offers incorporation advisory services in Singapore that benefits the companies in terms when  it plans to incorporate different businesses with it, in the future to make the company a better competitive than its peer competitors. For more information regarding setting up business entity, follow us on Facebook.   

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Business in Singapore

Singapore ranks among the top best places to incorporate business, both locally and internationally. But before incorporating business in Singapore, it is necessary that company owners understand the business market and accordingly apply the same while incorporating it. To understand the business market, it is mandatory to understand the law that prevails in the land and the economy structure, to ensure smooth success of the business. Without proper understanding of these things, business cannot gain the expectations and profits.

Typically, the law in Singapore enlists 15 different types of businesses, having different laws for each, which should be taken into consideration before starting up a business entity in Singapore. In order to understand the law and the market of any foreign state, businesses have to take help of experts or business consultants, who provide in-depth information about the setting up of business entity in Singapore. In this case, consultants like IBS Singapore can be proved to be very beneficial for businesses as they have qualified knowledge about legal settlements that are needed to be followed while registration of businesses in Singapore. For this purpose, consultants like IBS Singapore offer registration services in Singapore, which involves the terms and procedures needed to incorporate a business in Singapore. With this service, it becomes a hassle free jobs for the business owners and more attention can be concentrated over structuring the business in the market. Services like financial reporting services in Singapore and financial accounting services in Singapore, offered by IBS Singapore, help businesses to learn the financial status of the company and bring up strategies to build a stronger brand in the market.

Therefore, before planning to set up a business entity in Singapore, it is advised to take help from business consultants in order to avoid hurdles in smooth business operations.  

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Old standards, new amendments to secretarial standard - SS-1 & SS-2

After due deliberations, the Institute of Company Secretaries of India (ICSI) has amended Secretarial Standard (SS-1) & Secretarial Standard 2 (SS-2), and they are to come into effect from 1st October 2017.  

This got necessitated because of a slew of amendments and clarifications which further prompted a need to bring the standards in alignment with provisions of the Act and the recent changes thereon.

Here’s a look at some of the changes brought in SS1 & SS2

SS-1

Section 8 companies and OPC have been exempt from the applicability of the Standards

Only the committee of the board constituted by the Act is considered as committee for SS

As per revised SS-1, an adjourned Board meeting as well as adjourned Board meeting can be held on a National Holiday.

Speed post and registered post are acceptable modes of sending Notices, Agenda or notes. Sending by courier has been restricted.

Companies have to mandatorily maintain copy of proof of sending Notice for at least 3 years from the meeting date.

Any additional or urgent matter can be taken up with the permission of the Chairman and majority of directors present in the meeting. Consent of independent director is not mandatory.

Strict requirement of holding a Board meeting every calendar quarter has been done away with.  The Company needs to hold Board meeting at least four times in a calendar year with a maximum of 120 days interval between two consecutive meetings

A director, even after his retirement, can inspect the attendance register for the period of his directorship.

The request for leave of absence of a director can be communicated to any person authorized by the Board to issue Notice of meeting

As per the revised standards, a director in case of a private company, can participate in such item after disclosure of interest. However, he will not participate in a related party transaction.

Company has to maintain proof of sending draft minutes for at least 3 years.

Any alteration in the minutes can be done by express approval of the board in the subsequent meeting and this shall be noted in the minutes of such subsequent meeting.

The Directors report has to mention a statement that the company is in compliance with the secretarial standards

SS-2

Section 8 companies and OPC have been exempt from the applicability of the Standards

The Notice for General meeting shall be simultaneously hosted in website till conclusion of the meeting.

AGM Notice should also specify the serial number of the meeting

For ordinary business, Resolutions are not required to be stated in Notice.

In case of resolutions where remote e-voting is demanded or where a poll is demanded, the need for proposing and seconding the resolution has been done away with.

Private companies are not required to give notice and accompanying documents 21 days in advance of the meeting, if Articles provide otherwise.

Scrutiniser will have to submit his report to the Chairman or authorised person within 3 days of the meeting. This, however, will not impact listed companies.

Company can maintain minutes in physical or electronic form. No need of time stamp on electronic minutes. And the minutes book can only be kept at the registered office of the Company.

The revisions are aimed to improve the ease of doing business and has factored the suggestions of various stakeholders.

Businesses having its origin in India and which have established separate entities in Singapore, also need to have a closer look at the changing conditions and structure of market, to balance the equity share among the entities and the employees. If either of the business entity stumbles in the market place, competitor makes an easy way to eliminate the competition to his business. Thus, in such cases, where businesses have to stabilize their share and competition together, it is advised to business to take help from experts, having expertise in research, analysis and solutions guidance. In such conditions, consultancy firm such as IBS Singapore, who have in depth knowledge about both markets (Market of origin and market of global entity) can be helpful in managing the finances, business structure and plan and giving an overall security to business, in terms of business equity management and balanced financial module. IBS Singapore helps in setting up of business entity in Singapore, and forward it determines the company tax structure with its service of offering registration services in Singapore. IBS Singapore works as a guardian to businesses in Singapore by providing them with information security management service, shielding it in the market competition. At the later stages, when the business entity initiates its closer, IBS Singapore helps it through its services of providing assistance to winding up and closing down of the company, to ensure maximum return of investment to company buyers and sellers.

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Changing Small business into Big Enterprise

Small business sometime needs to step out and make itself big. If this does not happen, then the business cannot be entitled as “Successful” Many of the business entrepreneurs think that making business successful is an easy process, but they end up taking their business stocks from 1% to only 10%. While keeping up examples like Microsoft and Apple (one which started at the back house and other which started at the garage) it is necessary for small businesses to take up risks and move forward in the market. Enterprises need to analyse the market condition and parallelly should structure the business models to gain a higher market exposure and finances. Without proper identification of the business it won’t be possible for the business to attract investors and upgrade its value and position in the market. To have the analysis of market conditions, businesses are advised to employ a consultant and advisory body who will help in updating and maintaining business stability and exclusivity in the market.

Singapore, being one of the crucial markets for businesses, also shelters multiple competitors. Hence, if a business is planning to establish its business entity in Singapore, it should look for an advisor, who will guide it the right way. According to a research study carried by the business school of Toranto, each year nearly hundred thousand businesses register for loan agreements, but only 25% agreements get approved. This happens because the 25% business agreements are checked through consultants such as IBS Singapore. IBS Singapore, is one of the corporate consultant company in Singapore, that offers quality services in setting up business entity in Singapore along with incorporation advisory services in Singapore which helps the enterprise to draw a plan for increasing business returns and to structure proper business expansion in the market. Along with legitimate corporate consulting, IBS Singapore also offers services in tax structuring and advisory services in Singapore, subsequently giving legal support to businesses and enterprises.

Thus, it is necessary to employ an advisory firm or a compliance advisory service provider in Singapore , such as IBS Singapore, in order to follow better process and let your business progress. For more info, connect with us on LinkedIn for regular updates.

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Relationship between Business and Advisory Services and Consulting Firms

Everyone knows how important it is to maintain and sustain a relationship with other, in order to obtain a stability in life. In context of business and management, the factor of relationship is of an underlined importance. Business as defined is “an activity of exchanging of goods or services with one another, to get a return in the form of monetary profits that supports the organisation’s daily function or production in the market.” This definition explains how important it is for business to sustain a stable relationship with its customers or partners, in exchange to support their organisation’s existence. As it seems easy to maintain a relationship with customers and partners and fundraisers, it is to be understood that maintaining relationship is not easy! One of the major challenges for the business to succees is to make sure that everyone involved with the organisation is getting a worth of their investment. The challenge is resolved only when the business understands the customer and other associates.

Hence, to maintain and make the business relationship sustain with all its associates, advisory and consulting firms become the backbone of the organisation. Advisory services are one of those services which advice the business on its operations, its function. It paves a way for the business to see things clearly and to analyse the demand from the audience. IBS Singapore, being one such business advisory company, offers quality compliance and incorporation advisory services in Singapore, that has helped in bringing successful results for start-ups as well as enterprises. On the other hand, along with advisory services, IBS Singapore also offers services in setting up of business entity in Singapore, that help in the prior stages of establishment of the business organisation. It is necessary for a company to set up legal laws and regulations, parallel on the lines of the law of the land. IBS Singapore, being a complete advisory and consulting services, offers multiple services and strong advices that helps in rooting strong relationship with all associates in the market.

Another, important thing that relates to business and its relationship with the market is the finance of the business. Without proper structuring of finance and accounting, business cannot prosper through. With IBS Singapore’s tax structuring and advisory services in Singapore, business entities in Singapore can rest assured to keep their finances always at the highest stats.Thus business does not can function on its own, it needs to be supported by an extended relationship which can be achieved only by joining hands with expert advisory and consulting firms, such as IBS Singapore. For more updates, follow our post in Facebook.

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Relationship between Business and Advisory Services and Consulting Firms

Everyone knows how important it is to maintain and sustain a relationship with other, in order to obtain a stability in life. In context of business and management, the factor of relationship is of an underlined importance. Business as defined is “an activity of exchanging of goods or services with one another, to get a return in the form of monetary profits that supports the organisation’s daily function or production in the market.” This definition explains how important it is for business to sustain a stable relationship with its customers or partners, in exchange to support their organisation’s existence. As it seems easy to maintain a relationship with customers and partners and fundraisers, it is to be understood that maintaining relationship is not easy! One of the major challenges for the business to succees is to make sure that everyone involved with the organisation is getting a worth of their investment. The challenge is resolved only when the business understands the customer and other associates.

Hence, to maintain and make the business relationship sustain with all its associates, advisory and consulting firms become the backbone of the organisation. Advisory services are one of those services which advice the business on its operations, its function. It paves a way for the business to see things clearly and to analyse the demand from the audience. IBS Singapore, being one such business advisory company, offers quality compliance and incorporation advisory services in Singapore, that has helped in bringing successful results for start-ups as well as enterprises. On the other hand, along with advisory services, IBS Singapore also offers services in setting up of business entity in Singapore, that help in the prior stages of establishment of the business organisation. It is necessary for a company to set up legal laws and regulations, parallel on the lines of the law of the land. IBS Singapore, being a complete advisory and consulting services, offers multiple services and strong advices that helps in rooting strong relationship with all associates in the market.

Another, important thing that relates to business and its relationship with the market is the finance of the business. Without proper structuring of finance and accounting, business cannot prosper through. With IBS Singapore’s tax structuring and advisory services in Singapore, business entities in Singapore can rest assured to keep their finances always at the highest stats.Thus business does not can function on its own, it needs to be supported by an extended relationship which can be achieved only by joining hands with expert advisory and consulting firms, such as IBS Singapore. For more updates, follow our post in Facebook.

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Consultants to Business

Owning a business and monitoring its function is a difficult task. Business has to be regulated frequently, updating it by the market terms and status. One simply doesn’t become a successful business magnate, until and unless he is fully equipped with the study of the business statistics and its competitors. With the increasing competition, it becomes hardly possible for business monitors to keep a watch on each and every aspect of the competitors’ business. In order to make this task possible for the businesses, business consultants come into picture, where they study the market for the business and give out a valuable solution, helping the business to gain roots. Consultants are the one who have expert knowledge in the field and who analyse and predict the future of the company in the market. It directs the businesses through the right decisions and ways, to make the business more worthy.

Consultants, such as IBS Singapore, are one of those financial and business consultants, who help the businesses to oversee their parallel or separate entity, that is set up aboard, far from the original place of business origination. What essentially IBS Singapore does is that it offers services related to setting up of business entity in Singapore for businesses who already have an entity anywhere else around the globe. IBS Singapore helps the businesses with registration services, minimizing the company’s stress on this part. Along with this service of registration, IBS Singapore also offers tax structuring and advisory services in Singapore for start ups in order for them to clearly understand the tax structuring of business in the market. IBS Singapore has a team of experts who constantly analyse the market changes and accordingly suggest remedies to the business. With its compliance and incorporation advisory services in Singapore, IBS Singapore becomes the best choice for Business to pitch its business security in the competitive market.

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Consultants to Business

Owning a business and monitoring its function is a difficult task. Business has to be regulated frequently, updating it by the market terms and status. One simply doesn’t become a successful business magnate, until and unless he is fully equipped with the study of the business statistics and its competitors. With the increasing competition, it becomes hardly possible for business monitors to keep a watch on each and every aspect of the competitors’ business. In order to make this task possible for the businesses, business consultants come into picture, where they study the market for the business and give out a valuable solution, helping the business to gain roots. Consultants are the one who have expert knowledge in the field and who analyse and predict the future of the company in the market. It directs the businesses through the right decisions and ways, to make the business more worthy.

Consultants, such as IBS Singapore, are one of those financial and business consultants, who help the businesses to oversee their parallel or separate entity, that is set up aboard, far from the original place of business origination. What essentially IBS Singapore does is that it offers services related to setting up of business entity in Singapore for businesses who already have an entity anywhere else around the globe. IBS Singapore helps the businesses with registration services, minimizing the company’s stress on this part. Along with this service of registration, IBS Singapore also offers tax structuring and advisory services in Singapore for start ups in order for them to clearly understand the tax structuring of business in the market. IBS Singapore has a team of experts who constantly analyse the market changes and accordingly suggest remedies to the business. With its compliance and incorporation advisory services in Singapore, IBS Singapore becomes the best choice for Business to pitch its business security in the competitive market.

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Conversion of traditional firms to Company-LLP – A Strategic tool for growth

In today’s scenario, there are many who derive business opportunities not only through e-platforms or mobile applications, but also through the conversion of traditional forms of businesses through partnership/sole proprietary firm into more organized forms like the Company/LLP. This Conversion not only helps in having better branding, goodwill of the company; but also helps the liquidity of funds as well as working capital requirement; as Banks/ Financial Institution give more margin money and CC limit to the corporate as compared to firms and the company can raised money through Venture Capital/Seed funding. Such conversions are a part of business strategy and used to further the objectives of business.

Before planning to convert the company into a LLP, it is necessary that the business entrepreneur has completely studied the financial position of the company and the shares that it would gain in the business market. If the entrepreneur with no financial and marketing knowledge adopts to conversion, it is possible that the company will have to deal with a certain amount of loss. Thus, when the business of the company is thought to adapt to partnered ownership, it is necessary that the business is all set with good returns and profits. IBS Singapore, as a financial consultant for companies, draws plan for business structuring and incorporation, which helps the company to seed its business in the market with efficiency. Along with this service, IBS Singapore also extends the services of winding up and closing down of the company, making it a less stressful process. It is mandatory for the companies to study its financial status and IBS Singapore helps the company to understand this with its financial reporting services and financial accounting services in Singapore.

Pro’s of the conversion:

1.       Transfer of all the assets and liabilities of the business without paying the stamp duty and capital gain;

2.       Liability will be limited to the extent of their contribution in the company. Therefore, the management forego with the unlimited liability;

3.       Separate Legal entity of the company from its shareholders and directors;

4.       Perpetual session – didn’t dissolve by the death, insolvency or resignation of the shareholders;

5.       Easy to sell, transfer, merger etc with the other body corporates

6.       Easy transfer of interest is possible as the investment is in the form of shares, whereas in case of partnership reconstitution is required whenever any partner retires or a new partner joins

7.       Easy expansion and diversification of business

8.       Convenience in getting loan or finance from the banks and financial institutions,

9.       Change in shareholding and management possible without disrupting the business,

As every coin has two sides; in the same way, there are also the con’s of conversion:

Con’s of the conversion:

1.       Proper book keeping

2.       Mandatory audit requirement irrespective of turnover

3.       Dividend Distribution tax on declaration of dividend and income tax in the hands of the recipient if the amount increases Rs. 10 Lacs.

4.       Restricted Related party transaction, inter-corporate loans and investments, loans to directors etc

5.       Increased Disclosures and Compliance requirements

6.       Has to pay 2% of the net profit in Corporate Social Responsibility; if the net profit of the company is more than Rs. 5 crores.

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Advice for SMEs and MSMEs

How often have we heard of a Startup or SME with a very promising business model and a great start to their business, but only to find them in a huge debt trap few years down the line? Promoters end up staring at a business deadlock and face the prospect of poor ratings/scores due to impending NPAs.

Many SME/ MSMEs go through phases where they are not able to service their loans and that loan becomes NPA to the bank.

Our experience and analyses of various SMEs has revealed that SMEs/MSMEs take term loan for a specific purpose, which may generate enough profit to service the interest of loan - however they fail to generate adequate returns to pay off the principal amount and eventually they go for further borrowings and end up getting into the debt trap.

This can be further analysed from below mentioned example.

SME is in service business generating 2 crores of turnover with 10 % net margin, at very low rate of depreciation as the SME is into the service industry. It also borrows 1 crore which are to be utilized for purchase of vehicle and computers hardware & software at the rate of 12.5 % for the of 5 years. SME will pay Rs.2,25,000 as monthly EMI and the outflow for the year is 27 Lacs, whereas the income of the SME will be 20 Lacs, hence there is a short fall of 7 lacs for the first year and by that time there is no return on the investment, eventually there is no optimal way other than borrowing Rs.7 lacs from market to pay the EMI of first year, Further, if the business has seasonal impact then there will be high chances of delay or default for the payment of further instalments, which will be paid after bearing the interest and penalty likewise.

On the other hand, in such situation, where the SME is already bearing penalty and heavy rate of interest on the loan amount, it becomes a hard job to stabilize the business entity operating in other region. In such conditions of instability, it becomes mandatory for enterprise to bring on board an external adviser, who will guide the business in a broader prospect. One such consultant based in Singapore is IBS Singapore. IBS Singapore’s information security management service in Singapore, gives enterprises the required security to operate in the business place. With its financial reporting and financial accounting services in Singapore, IBS Singapore guarantees to enterprises complete financial patrolling that erases undesired interruptions, making business hassle free operation. IBS Singapore also offers registration services for business entities in Singapore, which brings legal as well as financial security to the business management.

Another hazard faced by SME is the CIBIL Scores. The impact of NPA to the SME is very severe as most of the banks take personal guarantee and assets of the promoter/director/family members as collateral – thus a delay in one or two instalment results in the reduction of the credit scores of all the Guarantors under CIBIL scores. This further reduces the probabilities of them getting additional or new loans, whereby they have to depend on private lenders outside the banking system for any new loans. This affects the growth of the SME, as the promoter struggles to get funds and the business expansion plans fail drastically.

Many of the SMEs may agree with the above example as they must have faced the similar issues. One solution to the above problem is to reduce the EMI outflow to the extent of the current earning of the business. For this to materialse, there should be a reduction in interest rate or the extended repayment timeline - authorizing bank manager to recover only interest on the request of the promoters in case of financial stress in business and increase the loan tenure.

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