EFS Trade Loan and Loan Insurance Scheme: how insurers share risk
What the EFS Trade Loan finances
The Enterprise Financing Scheme (EFS) is EnterpriseSG's umbrella for government-supported lending through participating banks. It has 8 loan types, including the SME Working Capital Loan, the Fixed Assets Loan, the Project Loan and the Trade Loan. The Trade Loan is the one built for companies that buy, hold and sell goods.
Supportable facilities under EFS-Trade Loan are:
- Inventory or stock financing.
- Structured pre-delivery working capital, on a revolving basis.
- Factoring with recourse, bill of invoice and accounts receivable discounting.
- Overseas working capital loans.
- Bank guarantees, with tenure capped at 2 years.
The maximum quantum is S$50 million per borrower group across all EFS facilities. The repayment period is up to 1 year, matching a trade cycle rather than a capital investment. EnterpriseSG has announced that EFS enhancements take effect on 1 April 2026, as set out in Budget 2026; the scheme page does not yet detail them.
How does the EFS risk share work?
The bank lends. EnterpriseSG agrees to bear a share of the loss if the borrower becomes insolvent. The standard risk share is 50%. It rises to 70% where the borrower is a young enterprise or trades into a challenged market.
| Term | Definition on the EnterpriseSG scheme page |
|---|---|
| Young enterprise | Formed within the past 5 years, at least 1 employee, more than 50% of equity owned by individuals |
| Challenged market | A country rated BB+ or below by S&P, including unrated countries |
| Standard risk share | 50% of the bank's loss after recovery |
| Enhanced risk share | 70% of the bank's loss after recovery |
Two features matter for the borrower. First, the risk share protects the bank, not the company. The borrower is liable for the full loan and any security given. Second, the bank must exhaust its normal recovery process, including realising security, before it claims from EnterpriseSG for the unrecovered balance. A personal guarantee from a director is called in the same way as on any other loan.
The practical effect for the company is access and price. A bank that carries 30% of the loss instead of 100% can lend to a 3-year-old trading company it would otherwise decline, or lend at a lower margin.
Who qualifies for EFS-Trade Loan?
The eligibility test has 3 parts, all set by EnterpriseSG:
- A business entity registered and operating in Singapore. Sole proprietorships, partnerships, LLPs and companies on the ACRA register all qualify.
- At least 30% local equity held directly or indirectly by Singapore citizens or permanent residents, measured on ultimate individual ownership.
- Group annual sales turnover of not more than S$500 million.
A company with 25% local shareholding fails the second test, whatever its turnover. A subsidiary of a foreign group fails unless Singaporean individuals hold 30% of the ultimate ownership. The bank runs this test at application and reports to EnterpriseSG.
The application goes to a participating financial institution, not to EnterpriseSG. Each bank applies its own credit assessment on top of the scheme rules, so a company that qualifies on paper can still be declined on cash flow or security.
Trade loan insurance in Singapore: what the Loan Insurance Scheme adds
The Loan Insurance Scheme (LIS) uses a different mechanism. Instead of the Government bearing a share of default risk directly, the trade facility is insured by a commercial insurer. The insurer pays the bank if the borrower defaults, and the borrower pays a premium for that insurance on top of the loan interest.
The scheme has been running since before 2009. The Ministry of Finance's December 2009 announcement described LIS and LIS+ as trade financing schemes in which the Government took on 75% of the default risk. Loans ran up to S$15 million and premiums were 30 to 50 basis points above standard facilities. Terms have been revised several times since, and the current premium support level should be confirmed with the participating bank at application.
For the borrower, LIS changes 3 things:
- The bank's exposure is covered by an insurer, which widens the bank's appetite for trade lines.
- A premium appears on the facility letter alongside interest and fees.
- The insurer may ask for information about buyers, goods and trade routes before the facility is approved.
The insurance protects the bank. The borrower remains liable to the bank in full, and the insurer that has paid the bank can pursue the borrower for the amount paid.
EFS, LIS and trade credit insurance compared
Companies often confuse these 3 products because each involves an insurer or guarantor behind a trade transaction. They protect different parties against different events.
| Feature | EFS-Trade Loan | Loan Insurance Scheme | Trade credit insurance |
|---|---|---|---|
| Who is protected | The lending bank | The lending bank | The company selling on credit |
| Risk covered | Borrower insolvency | Borrower default | Buyer non-payment or insolvency |
| Who pays | Bank and EnterpriseSG share the loss | Insurer pays the bank | Insurer pays the company |
| Borrower still repays | Yes, 100% | Yes, 100% | Not applicable |
| Arranged by | Participating bank | Participating bank | A broker, with a credit insurer |
| Typical use | Funding stock and receivables | Funding stock and receivables | Protecting receivables |
A trading company with S$8 million of annual export sales might use all 3. An EFS-Trade Loan funds the stock. LIS cover lets the bank extend a larger line. A trade credit policy pays the company if its buyer in Vietnam fails to pay a S$400,000 invoice. Only the third product puts money into the company's own account.
A worked example
Example only. A 4-year-old electronics distributor, 60% owned by 2 Singaporean founders and 40% by a Japanese supplier, has turnover of S$32 million. It qualifies as a young enterprise under EFS. It asks its bank for a S$3 million revolving pre-delivery working capital line under EFS-Trade Loan.
- Local equity: 60%, above the 30% floor. Eligible.
- Turnover: S$32 million, below the S$500 million cap. Eligible.
- Young enterprise: formed within 5 years, more than 50% individual-owned. Risk share 70%.
If the company became insolvent owing S$3 million, and the bank recovered S$1 million from security, the unrecovered loss would be S$2 million. EnterpriseSG would bear 70%, S$1.4 million, and the bank S$600,000. The founders' personal guarantees would still be enforced for the full shortfall. The broker's role here is the receivables side: a trade credit policy on the distributor's own buyers, which the bank may also accept as security.
Frequently asked questions
Who pays the LIS insurance premium, the bank or the borrower?
The borrower pays. The premium is charged on the facility alongside interest, and the Government has historically supported part of it. The exact support level has changed over the life of the scheme, so the bank's facility letter is the figure to rely on.
Does LIS protect my company or the bank?
The bank. If the company defaults, the insurer pays the bank and then has a right of recovery against the company. The company gains access to a facility the bank might not otherwise offer, but it does not gain any insurance payout of its own.
Can a company with 25% local shareholding use EFS?
No. EnterpriseSG requires at least 30% local equity held by Singapore citizens or permanent residents, measured on ultimate individual ownership. A company below that threshold can still borrow commercially, but the bank carries 100% of the risk and prices accordingly.
How does trade credit insurance differ from LIS?
Trade credit insurance protects the seller against its buyers not paying. LIS protects the bank against the borrower not repaying. A company that buys trade credit insurance receives the claim payment itself, and can usually assign the policy to its bank as security for a larger EFS or LIS facility.
Sources
General information only, not advice on any particular policy. Cover depends on the policy wording and the insurer's terms.