Enhancements to help local enterprises with their cash flow and cost of credit was announced today by SPRING Singapore. Companies will enjoy lower interest rates for key business financing schemes as well as a decrease in its share of the loan insurance premium. The government will increase its share of the loan insurance premium from 50% to 90%.

Lower interest rates for working capital and asset-based loans

With the additional enhancements, interest rates for key business financing schemes (Micro Loan, Bridging Loan and Local Enterprise Finance Scheme) will be lowered by 1.25%.

For loan tenures of 4 years and below, the interest rate will be fixed at 5.0% (down from 6.25%). For loan tenures above 4 years, the interest rate will be fixed at 5.5% (down from 6.75%). The variable interest rate loans under the Local Enterprise Financing Scheme (V-LEFS) will also enjoy a corresponding 1.25% interest rate reduction.

The lower interest rates will be effective from 1 January 2009 and will apply for the full tenure of existing and new loans under these schemes.

Participating financial institutions will revise the monthly instalments and notify existing loan applicants over the next two months. $554 million worth of loans are expected to benefit from the lower interest rates.

Lower loan insurance premiums for companies

To further ease the cost of credit for local enterprises, the government will also increase its share of the insurance premium under the Loan Insurance Scheme (LIS) from 50% to 90%.

The insurance premium currently stands at 1.5% of the loan quantum. With the increased insurance premium sharing by the government, enterprises will only need to pay 10% of the premium (ie. 0.15% of the loan quantum).

Loans approved from 1 January 2009 onwards will enjoy the reduced insurance premium.