Performing credit checks on small business vehicles

Singapore’s small business vehicles with less than S$2.5 million in turnover are generally not required to file their financials so long as they are financially solvent. In this instance, the solvent small business vehicles are then required to file their declaration of solvency, signed by their directors and company secretary.

With the lack of available financials, it is often a challenge for lenders and investors to ascertain the financial health of these small business companies to make credit or investment decisions. Risk and Returns have always been the general rule of thumb of evaluation for lenders and investors. And particularly for credit lenders who only bear the downside risks and do not benefit from upside risks, the financial standing of their borrowers can play a paramount role in influencing their own financial health. As such, there is need to identify a methodological system that accurately predicts the default risk of a small company despite the lack of financial availability.

Based on its understanding of the unique traits and filing requirements of small business vehicles and its experience in assessing default risks among the large, medium and small enterprises, DP Information Group (DP Info), a veteran in providing credit management services, has developed a rating model that can accurately ascertain the credit risks involved with the company / business.

The DP Info’s rating model works on a score system that evaluates not just the quantitative but qualitative factors in order to ascertain the credit risks involved with the company / business. It broadly takes into considerations both the company’s internal structures - covering its managerial experiences, history and reputation, paid-up capital, staff strength, litigation and bank charges, as well as external factors which may influence the company’s operations and growth including the 4 key risk factors - Market risks, Industry risks, Business risks, and Currency risks.

The DP Info’s Score System translates the results of the assessment into an aggregated score that reflects the overall financial status of the company / business. In addition, the Score System provides a guide on the recommended credit limit to be extended to the rated company / business.

Widely adopted by local and overseas corporations, DP Info’s Score System has proven to be a useful and predictive tool for lenders to make credit decisions. In the face of limited financial availability on small business vehicles which may discourage some from lending or entering in a business relationship with such entities, DP Info’s Score System provides an objective assessment that brings about greater transparency and certainty that facilitates lending and trade.

More information on DP Info’s Score System can be found in our Enhanced Local Credit Report for Exempt Private Limited Companies.