FAQs for Loans by Banks and Finance Companies to Singapore SMEs
Loans by banks and finance companies to Singapore SMEs
Important Note: The prescribed period for loans by banks and finance companies to Singapore SMEs ended on 19 November 2020. The reliefs described on this page has expired.
General FAQs
1. What kinds of loans are covered?
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The Act covers loans to an enterprise that are secured against:
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Any commercial or industrial immovable property located in Singapore (e.g. factory premises, retail space); or
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Any plant, machinery or fixed asset located in Singapore that is used for manufacturing, production or other business purposes.
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This is provided that the enterprise is at least 30% owned by Singapore Citizens and/or Permanent Residents, and the turnover of the enterprise group does not exceed $100 million.
2. What reliefs under the Act are applicable to me, the debtor?
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If you are unable to pay instalments on your secured debt due to COVID-19, your bank or finance company (collectively “creditor”) cannot take the following actions against you up to 19 November 2020:
- Enforce their security over your commercial or industrial property located in Singapore.
- Enforce their security over your plant, machinery or fixed asset located in Singapore that is used for manufacturing, production or other business purposes.
- Unilaterally impose new charges, increase charges or interest rates beyond what is provided for in the loan agreement.
- Start or continue court proceedings or insolvency proceedings
3. What must I do to enjoy the reliefs?
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The reliefs under the Act do not take effect automatically.
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If you qualify for the relief, you need to first serve a Notification for Relief on the creditor, as well as your guarantor/surety for the loan (if any), using the form at this link (SingPass) or this link (CorpPass).
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Once the Notification for Relief has been served on the creditor, the creditor cannot take the above actions in (b).
Specific FAQs
4. My business suffered a drop in revenue due to COVID-19. Under the Act, must I still continue paying for the instalments on my loans?
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The loan instalments continue to be payable. However, the Act prevents the creditor from enforcing their security, or commencing or continuing legal action during the relief period (i.e. up to 19 November 2020). This gives the creditor and debtor time to negotiate a mutually acceptable way to deal with the instalments and arrears.
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The relief applies only to debtors who can demonstrate that they are unable to pay the instalments due to COVID-19. It does not allow debtors who are able to pay to avoid paying. Debtors who have the ability to pay (even if they suffered a drop in revenue) are not entitled to relief under the Act.
5. I was unable to pay instalments for my secured loan that were due before 1 February 2020. Does the Act apply to me?
- No, the Act applies only to the inability to pay instalments on secured loans due to COVID-19 from 1 February 2020 onwards. The creditor is entitled to enforce any contractual rights they have for unpaid instalments due before 1 February 2020.
6. Do I have to pay the accrued unpaid instalments (and other charges if any) after the 6-month relief period?
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Yes, the unpaid instalments (and any other charges such as interest or fees for late payment, if provided for under the contract) continue to accrue during the relief period, and may be enforced after the relief period.
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The Act does not remove or absolve parties’ contractual obligations, but seeks to temporarily prohibit the creditor from enforcing the contract during the relief period.
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While this gives the debtor some breathing space without the threat of enforcement of security or litigation to sort out his finances, he may be subject to a higher outstanding amount at the end of the temporary relief period as the interest on his loan continues to accrue under his contract with the creditor.
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As such, debtors are encouraged to engage their creditors to negotiate a mutually acceptable solution that is more sustainable for them. This will also enable debtors to preserve their relationship with their creditors beyond this relief period. There are relief measures to help ease the financial strain on individuals and SMEs caused by the COVID-19 pandemic. For more information on the available relief measures, please refer to MAS’ announcement on 31 March 2020 at this link, and the statement by the Association of Banks in Singapore at this link.
7. Are unsecured loans (e.g. debt incurred on a corporate credit card) covered by the Act?
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No, the Act does not cover unsecured loans.
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If you require financial assistance, you may wish to consider the relief measures to ease the financial strain on individuals and SMEs caused by the COVID-19 pandemic. For more information on the available relief measures, please refer to MAS’ announcement on 31 March 2020 at this link, and the statement by the Association of Banks in Singapore at this link.
8. Are loans from moneylenders, which are not a bank or finance company, covered by this Act?
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No, the Act does not cover unsecured loans.
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Credit Counselling Singapore (CCS) has extended its debt restructuring programme to include individuals who have taken loans from licensed moneylenders (provided that these individuals also have bank loans). For more information, please refer to CCS’ website.
9. My bank or finance company had already repossessed my commercial or industrial property / plant, machinery or fixed asset before the Act commenced. Does the Act apply to me?
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Part 2 of the Act on Temporary Relief for Inability to Perform Contracts commenced on 20 April 2020. It does not apply to enforcement actions taken before that date.
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If you believe that your creditor breached the terms of your loan agreement, please seek legal advice.
10. Does the Act cover personal loans extended to individuals?
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The Act does not cover any personal loan extended to by individuals, whether secured or unsecured.
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You may wish to engage your creditor on available relief. There are relief measures available which enable individuals to apply to their lender to defer either (i) principal payment or (ii) both principal and interest payments up to 31 December 2020. For more information on the available relief measures, please refer to MAS’ announcement on 31 March 2020 at this link, and the statement by the Association of Banks in Singapore at this link
11. Can the bank or finance company (“creditor”) charge the debtor interest or other fees for late payment during the relief period, after the debtor serves the Notification for Relief?
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The Act does not remove or absolve parties’ contractual obligations. If the agreement provides that the creditor can charge interest or charges (be it for late payment or otherwise) in relation to a loan contract that is secured against a security set out in the Schedule to the Act, those charges would accrue and can be enforced by the creditor after the relief period.
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However, under the Act read with the Regulations, after the debtor serves the Notification for Relief, the creditor is not permitted to:
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Increase any charges or interest rate payable under the contract unless such increase (i) is specified in the contract; (ii) is calculated by reference to a formula (e.g. a reference rate) in the contract; (iii) relates to expenses reasonably incurred by the creditor in the ordinary course of business; or (iv) is further agreed to by the debtor.
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Impose new charges except with the further agreement of the debtor.
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The table below illustrates when an increase in interest rate or charges, or an imposition of new charges or interest, is or is not permitted.
Example | Permitted | Not Permitted |
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Contract provides that the creditor may charge “an additional x% p.a. or such other rate as it may in its discretion prescribe” on overdue payments. | Creditor can charge the additional x% p.a. | Creditor cannot increase the rate above the additional x% unless the debtor further agrees to the increased rate. |
Contract provides that the debtor shall “pay interest at SIBOR plus x% p.a., or such other rate as may be determined by the creditor” in the event of default. | Creditor can charge the stipulated additional interest at SIBOR plus x% p.a. | Creditor cannot increase the rate beyond SIBOR plus x% p.a., unless the debtor further agrees to the increased rate. |
Contract provides that the creditor may charge “$x a day for each day the payment is not satisfied in full, or any such other charge at its discretion”. | Creditor can charge $x a day for each day the payment is not satisfied in full. | Creditor cannot rely on this clause to increase the charges to more than $x a day, unless the debtor further agrees to the increased charges. |
Contract provides that creditor may “impose any charges at its discretion”. | Creditor can impose charges where it relates to expenses that are reasonably incurred by the creditor in the ordinary course of business, e.g. administrative charges (including increase) which are based on the creditor’s internal schedule of charges and are collected from other debtors with similar loan contracts. | Creditor cannot rely on this clause to impose a charge that is not reasonably incurred in the ordinary course of business, unless the debtor’s further consent is obtained. |
12. We represent a bank / finance company. A customer served a Notification for Relief on us in relation to a contract that does not fall within the Act. What do we do next?
- The Notification for Relief has no effect.
- Even though the Notification for Relief was served in error, this indicates that your customer has difficulties meeting his contractual obligations to the bank under the contract. We encourage you to engage with your customer to work out a mutually acceptable solution to deal with these contractual issues that have been caused by COVID-19.
- If you are unable to reach an agreement with your customer and wish to dispute the Notification for Relief, you may make an application to the Assessor by following the steps in this link. The Assessor will determine whether relief under the Act applies.