Leveraging corporate finance is a great way for Singapore entrepreneurs to turn their vision into money making ventures. Especially for small and medium-sized enterprises (SMEs), business loans from banks and other financial institutions in Singapore offer tremendous opportunities to expand their business while optimizing cash flow management.
If you are new to getting a business loan, this article covers how a business loan works, the types of loans, how to apply for a business loan and some of the best business loan packages available in Singapore.
How business loans work
To begin with, business loans and SME loans in Singapore are only for financing business-related activities such as buying assets, company acquisitions and improving working capital. Whether you run an SME or a large company, there are different types of loans for different purposes.
To qualify for a business loan, you must meet the requirements of the financial institution and provide a business plan to prove that the money will be used legitimately. Also prepare financial documents such as income tax returns, projected financial statements, bank statements, and accounts receivable and payable records. Lenders will always look at them to see if your business qualifies for a loan.
Like personal and mortgage loans, once your business loan application is approved, you will receive a set amount of cash to be paid back over time. The interest rates, fees and repayment timeline vary between different lenders. Typically, interest rates for unsecured business loans can fall from 0.1% to 15% per annum, with monthly fees ranging from 1% to 8%.
Related: Best SME Small Business Loans in Singapore 2023
Pros and cons of taking out a business loan
Before taking any form of financing or bank loans in Singapore, you should fully understand the pros and cons to ensure that it helps to achieve your goals but remains within affordable limits. The same applies to taking out business loans.
For entrepreneurs in Singapore, business loans and SME loans provide an opportunity to recalibrate their business and explore their entrepreneurial aspirations. There is also flexibility to use the loan funds to support various business activities. Unless you’re applying for a loan for a specific purpose, such as a commercial mortgage or car loan, lenders are unlikely to intervene if you use the money for activities that deviate from your original intent.
The disadvantage? There are strict requirements that your business must meet before the loan application is approved. Lenders will look at factors such as your personal and business credit scores, annual revenue, business size, business proposal and number of years in business.
Types of business loans in Singapore
Business loans can be secured or unsecured. The difference is that a secured loan requires borrowers to apply with a personal guarantor or collateral, such as a real estate property, to secure the repayment of a loan.
Some common business loans in Singapore are:
A basic business loan from banks is usually an unsecured loan that does not require a personal guarantor or collateral. Borrowers have a flexible repayment period of one to five years, but they must have a minimum annual turnover of S$500,000 to S$1 million.
Loans for small and medium-sized enterprises (SMEs).
SME loans in Singapore are designed to help small local businesses and start-ups easily access finance. They can be used to finance working capital or purchase fixed assets such as commercial real estate or machinery. Singapore entrepreneurs can also take advantage of the Government Assistance Scheme, which offers a range of financing products to help small businesses thrive in a competitive market.
Financing loans for equipment
These loans are solely for purchasing new business equipment and machines or updating current ones. The loan amount can be up to 90% of the purchase price, and borrowers can choose fixed or variable interest rates to meet their needs.
Starting business loan
A starter loan is comparable to a term loan where SMEs receive a lump sum that must be repaid within five years. The maximum loan amount may be lower than traditional business loans, but it is suitable for young start-ups that have only been operating for a few months and do not have a strong financial bottom line to finance a business loan.
Invoice financing is designed to help businesses finance their purchases for better cash flow management and free up their cash for other business purposes. This is done by selling their unpaid invoices to a bank for an immediate cash advance which is usually between 70% and 90% of the invoice amount.
Business loans available in Singapore
Ready to take out a business loan? Here’s a list that can help you make an informed decision:
Best SME Loan – Micro Loans from Finance Companies
Borrowers can get ultra-fast access to financing approval within 24 hours. The maximum loan amount is up to S$2,000,000 for secured term loans and S$1,500,000 for unsecured loans. This loan is suitable for Singaporean companies that have been operating for at least one year and have an annual turnover of S$300,000 or more.
|Maximum loan amount||
|Fees||1% to 7%|
|Loan Tenor||1 to 12 months (renewable)|
Best traditional bank loans
This loan is open to all companies registered in Singapore, including those not eligible for government-backed loans. No collateral is required when applying for this loan, but at least one guarantor must be appointed. You do not need to visit a DBS branch to apply, applicants can easily apply online with Myinfo business.
|Maximum loan amount||$500,000|
|Fees||S$500 up to 2%|
|interest||7% to 11%|
|Loan Tenor||Up to 5 years|
Business loan with the largest loan amount – Minterest
Minterest is ideal for Singapore registered companies and limited liability companies (LLPs) that need large funding. It offers rare corporate financing as much as S$5 million. However, to qualify for this loan, a business must have been operating for more than a year with a minimum annual turnover of S$500,000.
|Maximum loan amount||Unsecured Loan – S$100,000 to S$5,000,000|
|Cost:||2% to 6%|
|interest||6% to 15%|
|Loan Tenor||1 to 12 months|
If you’re ready to start your business, check out our roundup of the best SME and business loans in Singapore.
Cover image source: Unsplash
The article originally appeared on ValueChampion.
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