Properly financing your small business is critical to its success.
You understand that you need to invest in it now to see it flourish for your startup company to succeed truly.
But that doesn’t mean you should go for just any business loan!
We’ve compiled a list of the finest business loans in Singapore so you can compare interest rates and costs before deciding on the best option for your company.
What are the Types of Business Loans Available in Singapore?
Any loan granted to a business for commercial reasons is referred to as a business loan.
There are many different business loan options: some are available for any company purpose (such as managing cash flow or expanding your firm), while others are tailored to specific business needs (such as machinery/equipment or property loans).
There are even specific business loans for start-ups!
Want to find out the best financing options for your specific small business?
Keep on reading to find out the most prevalent types of business loans in Singapore!
Unsecured Business Term Loan
Current interest rate: 10% to 13% p.a.
An unsecured business term loan is the most common type of business loan.
The loan amount can range from S$50,000 to S$400,000 per bank, with no collateral required. This financing option gives you a repayment period of up to 5 years to pay it off via equal monthly instalments.
Furthermore, yearly top-ups for existing loans are also available.
But the best part is: all the major banks in Singapore offer these business loans to SME business companies!
SME Working Capital Loan
Current interest rate: 6.5% to 7.5% p.a.
This is a unique form of business loan available to Singapore-registered small-to-medium enterprises with at least 30% Singaporean/PR ownership.
The initiative between the Singapore government and major banks has created a once in a lifetime startup business loan for small businesses.
The SME working capital loan provides funding of up to S$1 million per borrower, repayable over a period of one to five years.
This business loan has a great repayment model, allowing businesses to repay banks at any period with no penalty and a pro-rated interest!
Temporary Bridging Loan
Current interest rate: capped at 5% p.a.
The temporary bridging loan is another government-assisted business loan to help all Singapore businesses given Covid-19’s impact on the economy.
That’s right – you don’t have to be an SME to receive this financing!
This business loan aims to ease the wealth management of SMEs by improving access to financing (up to S$5M) and lowering the cost of financing with a 5-year repayment period.
Startup Business Loan
Current interest rate: 2.5% – 4.5% p.a.
The starter company loan, sometimes known as a “first business loan,” is a smaller version of a conventional business loan, capped at S$100,000.
It’s much easier to receive a startup business loan as the terms are relatively lax: you only need to be open for a few months and don’t need to have a long credit history.
Trade Financing
Current interest rate: 6.75% to 8% p.a.
Trade financing allows SMEs in Singapore to finance inventories or material purchases from suppliers based on credit.
With a Letter of Credit (LC), Singapore companies can buy up to their trade financing limit by paying the selected bank’s interest rates.
Did you know that LCs from this business loan can also be awarded to overseas suppliers?
This loan is a great option for businesses with less working capital.
Factoring / Receivables Financing
Current interest rate: 6% to 8% p.a.
Invoice financing is the way this loan works.
You may be asking: what is invoice financing?
It is where financiers advance between 80% and 90% of the value of your customers’ outstanding invoices.
Suitable for trustworthy SMEs that provide services to reputable companies in Singapore.
You really need to have a stellar credit score before applying for this business loan!
Property Financing
Current interest rate: 1.3% to 2.5% pa..
In need of business premises for your company to operate?
Commercial or industrial property can be purchased with the help of a mortgage loan.
SMEs have the option of pledging existing assets to banks for application of this business loan.
Because of its collateral nature, the interest rates for this method of financing are significantly cheaper than other business loans!
Equipment Financing
Current interest rate: 5% to 8% p.a.
An SME business can use this loan to buy crucial products for their businesses on a hire-purchase or lease basis.
Looking to grow your Singapore business by investing in modern equipment?
Then equipment financing is the best option for you, especially if you’re looking to improve cash flow!
How do I Get an SME Business Loan in Singapore?
Supporting the expansion and operations of a fast-growing business often necessitates large financial resources.
SME business loans allow you to invest in your company, whether to expand your personnel, relocate to a larger location, or open additional branches.
Because there are various ways to fund your business in Singapore, this article will assist you in deciding which strategy is best for your SME loans!
Bank Loans
Banks in Singapore offer two types of corporate financing: funding and working capital loans.
A working capital loan is used to fund your company’s day-to-day operations, as the name implies.
Working capital loans aren’t used for long-term asset purchases or investments. Instead, they’re utilised to pay for things like wages and accounts payable.
Meanwhile, for bank funding, as part of your business loan application, you are required to share your business plan, valuation and project report.
Every bank in Singapore provides SMEs loans via their unique programmes. Some common bank funding includes UOB BizMoney Loan and DBS BusinessTerm Loan.
P2P Crowdfunding
Peer-to-Peer Crowdfunding is a type of business financing where people lend to each other.
P2P lending systems enable members of the public to connect with businesses in need of funding.
You may be familiar with Kickstarter campaigns for indie projects – that’s a common business financing that relies on individuals for support.
Public investors lend money to your business in exchange for interest rate returns or profits during the repayment period.
It is one of the quickest and easiest SME loans available in Singapore! Let us tell you why:
- Accessible for businesses who are not able to receive clearance from traditional small business loans
- Cheaper interest rates (reliant on rates offered by banks and peer-to-peer lenders)
It is certainly a viable alternative to SME loans if you’ve exhausted other financing options.
Why Might My Business Loan Be Unsuccessful?
As you can see, SMEs in Singapore have access to a variety of business loans! Our government has even stepped in to ensure sufficient SME working capital.
Sometimes, despite all the odds, your business loan application may still be rejected. Unfortunately, you won’t even know until after the application process, which may take weeks!
When applying for SME business loans, these are several potential factors that could be preventing your loan from getting approved.
Keep an eye on these factors for the flawless approval of your SME loan!
Track Record
Obtaining an SME business loan as a start-up can be quite difficult.
To qualify, providers usually require a stellar track record from your business:
- Businesses need to be operating for at least 6 months
- Verification of your annual revenue
It may be tough to obtain a company loan if you are just starting.
Business Ownership
It may be more difficult to obtain a business loan if you do not have enough Singaporean/PR shareholders.
Government-assisted business financing is open only to
- businesses registered in and present in Singapore
- at least 30% owned by Singaporeans/PRs
Credit Rating
If you have a bad credit score, business loan providers may refuse your application.
Banks will distrust your ability to repay your loan if you have a low credit score.
Even though it’s for a company loan, your personal credit score impacts the application process of banking institutions.
Best Singapore Business Loan Interest Rate 2021
Different banks and corporate loan products bear different interest rates.
A typical business term loan interest rate ranges between the simple interest of 3.5% to 7% p.a.
Most Singapore SMEs have banking accounts with several local banks due to their wide retail banking network and brand familiarity.
These local banks are undoubtedly the dominant players in Singapore’s SME financing space.
With strong branding and sturdy balance sheets, our top 3 homegrown banks continue to dominate Asia’s safest banks rankings year after year.
1. DBS Business Loan
DBS offers an unsecured business term loan for SMEs:
- Maximum loan amount: S$500K
- Maximum loan repayment period: 5 years
- Early redemption penalty: 2.5%
As part of the Covid-19 Resilience Budget, you can opt to pay only the interest for the first 12 months of your loan.
This loan does not demand any collateral.
2. OCBC Business Loan
OCBC unsecured business term loan features:
- Maximum loan amount: S$500K
- Maximum loan repayment period: 5 years
- Early redemption penalty: 5%
This loan does not require any paperwork or collateral, but it does require at least one guarantor (a Singaporean or PR who is 21 years old or older and has an annual salary of at least S$30,000).
3. UOB Bizmoney Loan
- Maximum loan amount: S$350K
- Maximum loan repayment period: 4 years
- Early redemption penalty: 6.88%
To be eligible, your company must be at least one year old, 30% locally owned, and have more than 50% equity held by individuals.
Your company should not employ more than 200 people and have an annual turnover of less than S$100 million.
All 3 banks have interest rates of 10.88 p.a. and a processing fee amounting to 2% of the loan.
Although the basics of the financing products are similar, the three banks have different internal credit requirements, too, such as
- director age limits
- type of business industry
- minimum revenue requirements
- Aside from our three local banks, approximately 20+ banks, financial institutions, and alternative financiers provide working capital loan financing to SMEs.
4. Standard Chartered CashOne
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- Maximum loan amount: S$300K
- Maximum loan repayment period: 3 years
- Early redemption penalty: 5%
- Interest rate: capped at 11%
- Processing fee: 2% of your loan
The Standard Chartered Business Instalment Loan is one of the stricter loans.
To be eligible, your company must be registered in Singapore and operating for at least three years, with a minimum annual turnover of S$750,000. In addition, at least half of the company must be owned by Singaporeans or PRs.
If you qualify, you can borrow up to 4 times your monthly income, capped at S$250,000.
It’s also hassle-free: Your loan will be authorised immediately and disbursed to any bank account you want (no need to set up a Standard Chartered bank account).
5. Maybank Business Term Loan
- Maximum loan amount: S$500K
- Maximum loan repayment period: 5 years
- Early redemption penalty: 5%
- Processing fee: 2% of your loan
The Maybank2U Singapore SME Loan requires a minimum annual revenue of S$300,000.
Cash IN Asia: The Small Business Loan Experts
These options can leave first-timers feeling out of depth.
You can quickly compare all banks’ SME loans with Cash IN Asia’s business loan assessment!
Need help in getting an SME loan?
Here’s how we can help your small business or start-up:
- provide a comprehensive menu of loan options
- manage the varying criteria and credit requirements of different banks
- and more!
As your trusted financial companion, Cash IN Asia is committed to fast-tracking your business for success!
Disclaimer: If you have any doubts about this article, please double-check the information with the appropriate bank’s business lending department.
Source: Wordstream
