More than 40,000 small businesses in Singapore suffered due to the COVID-19 pandemic. And most of these businesses will need 1-2 years to recover. On top of that, SMEs are also facing the current challenges of high rental costs and operational costs.
Thankfully, the Singapore government offers grants and financial schemes to help them get back on their feet. Additionally, SMEs in Singapore can also turn to traditional business loans with banks or other non-traditional options, such as licensed money lenders.
How can business loans help SMEs? A business loan is a type of financial assistance offered to a company for business purposes. This loan can be used for whatever business needs you might have, such as managing cash flow or for business expansion.
What Can Business Loans Be Used For
As a small business or SME (small-to-medium enterprise) owner, you can look to business loans for various reasons. For one, you can use the funds to improve cash flow. Here are other reasons to take business loans in Singapore:
- Accelerate Business Growth: If you want to diversify or branch out to new sectors, taking SME business loans will help you achieve these goals.
- Take Advantage of Business Opportunities: With a business loan, you can use the funds to grab the right opportunities at the right time. You can use the fund to expand your business. Let’s assume that you found a storehouse for sale in your area. With a business loan, you can quickly purchase the storehouse before it gets snagged by competitors.
- Invest in Inventory and Equipment: With a business loan, you can boost cash flow to purchase inventory. It can also be used for buying new equipment or machinery for your business.
- Address Cash Flow Issues: If your business faces seasonal demands and off-season periods, a business loan will help address cash flow issues. Having enough funds on hand will make sure that you have cash on hand for payroll and emergency business expenditures.
Types of Business Loans in Singapore
Any type of loan offered to companies for business needs is called a business loan. However, there are different types of business loans in Singapore.
For instance, a certain type of business loan can be used for whatever your company needs, such as managing cash flow. Other business loans are more specific, such as loans for machinery/equipment or for start-ups.
Here are some of the most common types of business loan options in Singapore:
Government Financing Schemes
Introduced in 2020, the Government-assisted business loan schemes in Singapore were offered as a way for the government to support SMEs in Singapore. These schemes are facilitated by Enterprise Singapore (ESG) and their participating financial institutions (PFIs).
What makes these business loan options attractive to SMEs is their typically lower interest rate than the banks’ commercial term loans. Additionally, these schemes include a government risk share of up to 70%.
- Temporary Bridging Loan Programme: This government-backed business financing scheme is available to all businesses – not just SMEs. Companies can loan up to S$1 million with a maximum repayment period of 5 years.
- Enterprise Financing Scheme – SME Working Capital Loan: This type of business loan is offered to local SMEs with a maximum of 200 employees. The maximum possible approved loan amount is S$300,000 to be repaid within 1 to 5 years. Starting 1 October 2022 to 31 March 2023, the maximum loan amount is up to S$500,000.
- Enterprise Financing Scheme – Trade Loan: This is another government SME loan scheme that helps SMEs obtain trade financing from participating financial institutions. The maximum loan quantum is S$5 million with a maximum repayment period of 1 year.
Note: Both the Temporary Bridging Loan Programme and the Working Capital Loan are unsecured business loans. That said, their structure is similar to that of typical unsecured business term loans.
You can apply for government-assisted business loan schemes through banks or participating financial institutions.
Unsecured Business Term Loan
Unsecured business term loans involve a lump sum cash disbursement and monthly loan repayments over the course of the loan period. It does not require collateral, such as property or equipment. However, it needs the company directors’ personal guarantees. Business term loans have a loan tenure of between 3 to 5 years.
This type of financing is popular amongst SMEs due to its flexibility. You can use the funds for your daily operational needs, such as inventory purchases or payroll. Or you can use it to finance business expansion plans.
Features:
- Maximum loan amount: Up to S$500,000
- Maximum loan tenure: Up to 5 years
- Interest rate: Range between 7% to 12% per annum with administration fees
You can get unsecured business term loans through major banks in Singapore. Another option is to get a business loan from licensed money lenders if a typical bank loan is unavailable to you.
Merchant Cash Advance
Merchant Cash Advance (MCA) is a niche financing product that is available to retail or F&B businesses that primarily accept credit card payments. It provides quick funding to businesses that need immediate working capital.
One example is Grab’s Merchant Cash Advance. This option is designed to help Grab Merchant-partners in managing their daily operating costs, such as payroll, rent, or diversifying their offerings.
The main evaluation criteria for MCA is the company’s credit card transaction over the last 6 months.
Business First Loan
This financial product is an unsecured loan that caters to business start-ups. It is open to businesses that are registered and have been operating in Singapore between 6 months and 2 years.
One of the major banks in Singapore offering this business loan is OCBC Bank.
Invoice Financing
Invoice financing is a form of short-term loan wherein your business borrows money against the amount due on invoices you’ve issued to your customers. This means you’ll get payments owed in advance. This business loan option is useful for B2B businesses that sell to other companies on credit terms.
Property Financing
This is a type of mortgage loan for businesses to finance the purchase of commercial or industrial properties. However, this type of business loan typically requires collateral. SMEs can pledge current property to banks for financing facilities.
Equipment/Machinery Financing
With this business loan, you can use the funds to purchase fixed assets, such as machinery and equipment. It is typically structured as a hire purchase or finance lease.
What type of loan is best for a small business?
Different banks and financial institutions charge different interest rates. For instance, the interest rate for the Temporary Bridge Loan Programme is capped at 5%. SME Working Capital Loans’ interest rate, on the other hand, will depend on the financial institution’s risk assessment.
Unsecured business term loans can range between 4% and 20% depending on several factors, such as loan tenure.
Here are some of the best traditional bank loans:
| Maximum Loan Amount | Loan Tenure | Interest Rate | |
| DBS Business Loan | Up to S$500,000
|
Up to 5 years | 7% to 11% p.a. |
| OCBC Business Term Loan | Up to S$500,000 | Up to 5 years | 8.88% to 10.88% p.a. |
| OCBC Business First Loan | Up to S$100,000 | Up to 4 years | 7.75% to 9.75% p.a. |
| UOB BizMoney | Up to S$350,000 | 1-5 years | 10.88% p.a. |
| Standard Chartered Business Instalment Loan | Up to S$300,000 | Up to 3 years | 11% p.a. |
| Licensed Moneylender | Up to S$200,000 | Up to 24 months | 5%-15% |
OCBC Business First Loan: Best for Start-Ups
If your business is relatively new with only 6-24 months of operating experience, then the OCBC Business First Loan is one of the best business loan options. It is specifically designed for start-ups; thus, it has less stringent eligibility criteria than other business loans.
To qualify, the company must be:
- Business must be registered and physically present in Singapore for 6 – 24 months.
- At least 30% owned locally.
- No more than 10 employees or an annual turnover of less than S$1 million.
- At least 1 guarantor Singaporean or PR between 21 to 62 years old with min annual income of S$30,000.
With this loan, business start-ups can borrow up to S$100,000 for up to 4 years. Additionally, the interest rate charged per annum is lower at 7.75%.
DBS Business Loan: Best Traditional Bank Loans
DBS offers an attractive business loan with competitive interest rates (7% to 11% p.a.). Additionally, businesses can borrow up to S$500,000 for up to 5 years. This type of business loan is perfect for companies that have a stable source of income and annual sales.
Licensed Money Lender: Best Alternative to Traditional Bank Loans
What if government-assisted schemes and traditional bank loans are not available to you? Taking an SME loan with a licensed money lender in Singapore is a viable option.
With a licensed money lender, the loan amount you can borrow is up to S$200,000. Note that a business loan has different rates and is subject to the moneylender’s assessment. Generally, it ranges between 5% and 15%.
What makes business loans with licensed lenders attractive is the fast cash disbursement. With a legal lender, you can get the funds you need within 24 hours.
Is it safe to borrow from a licensed moneylender in Singapore?
Yes. Licensed moneylenders in Singapore are approved by the Ministry of Law. They are registered and adhere to the rules and regulations stipulated in the Moneylenders Act. You can check the legal lender’s license and credibility at the Ministry of Law website. There you will find the complete list of licensed moneylenders in Singapore.
Getting a Business Loan
The eligibility criteria and requirements will vary depending on the bank or financial institution. However, there is a basic set of criteria to assess business loan applications for SMEs in Singapore.
Note that even if you are eligible, your business loan application may still be rejected if it fails during the evaluation process.
Basic Eligibility Criteria
- The business must be incorporated in Singapore
- Must be in operation for at least 2 years
- Must have a revenue of at least S$300,000
- Lastly, the company must be at least 30% owned by Singaporeans or Singapore Permanent Residents
Requirements
Note: The list of documents required may vary depending on the bank or financial institution. It is best to check with the financial institution of your choice.
- ID copy of business owner
- Income tax Notice of Assessment (NOA) of business owner
- Credit bureau report of business owner
- Latest 3 to 6 months bank statements
- Latest 2 to 3 years financial statements
- Latest 4 quarters GST form F5 (if GST registered)
- Operating premise proof of address (utility or telco bill)
- Copy of operating license or professional certificate (for businesses in regulated industries that require licensing, certification, or professional accreditation from relevant authorities)
- Memorandum and Articles of Association (for Pte Ltd entities)
Tips When Financing Your Business
It’s not enough to qualify for a business loan. Your business loan application must be approved after the credit evaluation process. That said, you need to prepare your business and improve your chances of getting a business loan.
Here are a few tips when financing your business:
- Determine how much you need: Before you start looking for business loans, you must be clear about your objectives. Determine what you’re going to use it for, the loan amount you’ll need, and how you’re going to pay it off.
- Prepare a good business plan: Some banks may need a clear business plan. This will signal to lenders that your business is trustworthy and you have a clear plan as to where the funds will be used.
- Know your options: The list of SME loans above will give you an idea of your options and what you can use it for. For instance, if you need funds quickly, then you may benefit from taking a loan with a legal money lender who can disburse cash on the same day of your application.
- Build a good credit record: Having a strong credit record is crucial. Even if you qualify for a loan, if your credit score is not good then your loan application will still be declined. A good credit record shows banks and financial institutions that you can be trusted to pay on time. Here are 5 ways to imrpove your credit score.
- Maintain a good business banking account: In line with having a good credit record, you must also keep a healthy bank balance. A well-maintained bank account will show financial institutions that your business is doing relatively well.
Closing
There are many types of SME loans available in Singapore. Additionally, the government has stepped in to ensure that funding is available to small businesses struggling during the pandemic. That said, before you start applying for a business loan, you must take your time in comparing your options.
Key Takeaways:
- Government-backed business loans are attractive to SMEs because of their typically lower interest rate than the banks’ commercial term loans.
- Traditional business term loans are highly flexible. It can be used for your daily operational needs, such as inventory purchases or payroll.
- SME loans with licensed moneylenders in Singapore are a viable alternative to traditional SME loans, especially when you need quick funding. Licensed lenders are approved by the Ministry of Law and they adhere to the rules and regulations stipulated in the Moneylenders Act.
Need funds fast? 365 Credit Solutions is always ready to extend a helping hand. Awarded the Top 10 Licensed Moneylender 2021 by Loan Advisor and other loan comparison sites, you can be confident that you’re in good hands. Request an obligation-free quote today!
