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Bridging Loan vs Term Loan: Which Is Better for Your Business

bridging loan vs term loan
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At some point in your business, you may require additional capital to help in expanding your business. This is where a business loan, such as Temporary Bridging Loan and Business Term Loan can come in handy. The funds can be used for a variety of things – from expansion to boosting cash flow to grabbing new business opportunities.

The Temporary Bridging Loan Programme (TBLP) provides businesses from different sectors access to working capital. Eligible firms may borrow up to S$1 million from Participating Financial Institutions (PFIs). Business Term Loans, on the other hand, allows SMEs to borrow up to S$500,000 over a five-year period.

Do not confuse TBLP with Bridging Loans. The latter is used to help homeowners pay for the downpayment of their new property purchase while waiting for their old home to sell. In this article, we will be focusing on the Temporary Bridging Loan Programme.

So which type of business loan is for you?

Bridge Loan vs. Term Loan

  Temporary Bridge Loan Programme Business Term Loan

Purpose of the loan

Provides access to working capital for business needs

Used for equipment, real estate, or working capital

Maximum Loan Amount

Up to S$1 million (from 1 April – 30 September 2022)

Up to S$500,000

Loan Tenure

Up to 5 years

1-5 years

Interest Rate

Fixed interest rate capped at 5.5%

7-12% per annum

Administration Fees

1% to 2%

1% to 5%

One of the key differences between these two business loans is the maximum loan amount. With TBLP, eligible borrowers can borrow up to S$1 million. Additionally, the interest rate is capped at 5.5%.

On the other hand, Business Term Loans are offered by banks and financial institutions. And since the government doesn’t provide a risk-share, the loan amount is capped at S$500,000.

To make this possible and encourage participating financial institutions to provide Temporary Bridging Loans, the Singapore government offers a risk share of 70%. The risk-share kicks in if the business fails to make full repayment.

dollar bills wallet

Bridge Loan – Ideal for Small and Medium Enterprises

Is your business going through a rough patch? Are you currently facing overdue bills or late staff salary payments? Waiting isn’t an option! A business bridge loan may be of help.

A “bridge loan” is also considered a gap financing because it is used by companies to “bridge” a temporary cash gap. With this financing, they can boost cash flow to fulfill business obligations, such as buying inventory and equipment, or paying rent.

The Temporary Bridging Loan Programme (TBLP) is one of the several initiatives by the Singapore government to support firms during the pandemic. In fact, over 5,000 firms have borrowed about S$4.5 billion from government-assisted schemes. The TBLP has been extended up to 30 September 2022.

What Can Bridge Loans Be Used For?

  • Push business growth plans
  • Renovate your office space or building
  • Relocation
  • Purchasing property
  • Purchase inventory
  • Replacing faulty machinery
  • Immediate cash flow to pay staff salary

Pros and Cons

Pros

  • Quick Funding: It can be challenging for business owners to get funding. Thankfully, bridge loans are typically approved between 1 to 2 weeks. However, this will depend on the participating financial institutions.
  • Fixed Repayment: A temporary bridge loan has fixed repayments. This allows businesses to set a budget to ensure timely loan repayments. Additionally, business owners can choose to pay loans over a shorter or longer time frame depending on their business’ financial situation.
  • Capped Interest Rate: Getting a temporary bridging loan is a very low cost. The interest rate is capped at 5.5%. Additionally, eligible businesses with a proven track record of making timely repayments may be offered lower interest rates.
  • New Start-Ups May Apply: With a Temporary Bridging Loan, new start-ups are eligible to apply. To qualify, the business entity must be registered and physically present in Singapore. Plus, it must have at least 30% local equity held directly or indirectly by Singaporean(s) and/or Singapore Permanent Residents.

Cons

  • Risky: Just like any type of loan, bridge loans will also entail risk because you’ll need to make loan repayments on time. If your business can’t generate enough income, you may not be able to repay the bridging loan.
  • Terms are Shorter: With TBLP, you can choose a loan tenure of up to 5 years. This is relatively shorter than regular loans. If you’re looking for long-term financing, you may want to consider taking out a personal loan with a maximum loan tenure of 7 years.

Where and How To Apply

You can apply for Temporary Bridge Loans from any of the following Participating Financial Institutions (PFI). Note that the application is subject to the banks’ credit approval.

bridge loan institutions

(Source: Enterprise Singapore)

Eligibility

  • Business is registered and operating in Singapore
  • The business has at least 30% local shareholdings by Singaporeans or Singapore Permanent Residents
  • Group revenue of up to S$100 million or maximum employment of 200 employees

Requirements

  • Latest 2 years financial statements
    • Usually not required for loans below SGD 50,000
  • Latest 3 months bank statements

Note: Required documents may vary depending on the PFI.

How To Apply

  • Visit the nearest branch of your preferred bank or participating financial institution and ask for the application documents 
  • Or apply online
  • If you apply using ACRA or MyInfo Business, the PFI can retrieve most of the required information without asking you to submit financial documents
  • If otherwise, you may need to provide additional information.
  • Wait for approval and funding
two business man shaking hands coin background

Business Term Loan – Ideal for SMEs Who Need Temporary Funds

A business term loan is an unsecured loan offered by banks and financial institutions. Since it is an unsecured loan, business owners are not required to pledge assets as collateral. With this type of loan, SMEs can borrow up to S$500,000 with an interest rate of between 7-12% per annum. The repayment period is typically 1-5 years with equal monthly repayments.

Note that the loan amount, tenure, charges, and repayment schedule may vary across different institutions. That said, you must choose a business term loan that is affordable to you while solving your business needs.

See Also: Maybank CreditAble Term Loan

What Can Term Loans Be Used For?

Just like with a Temporary Bridging Loan, Business Term Loans are also very flexible. You can use it for:

  • Funding daily operational needs
  • Inventory purchases
  • Payroll
  • Finance business expansion plans
  • Leasing a new retail outlet

Pros and Cons

Pros

  • No Collateral: Business term loans are unsecured loans, so no collateral is required. It also doesn’t need a guarantor. However, it must be supported by your company’s past financial performance.
  • Fixed Repayment: With a fixed repayment schedule, your business can properly set aside a budget for loan repayment.
  • Less Risk Compared To Equity Financing: There are other ways for SMEs to get access to funds, such as Equity Financing. However, taking a business term loan has less risk since you’re not giving up the equity of your company. With Equity Financing, investors will have a say in your day-to-day operations.

Cons

  • High Interest Rates: Business term loans have an average interest rate of 7-12% per annum which is considerably higher than other types of loans, such as Personal Loan with an average interest rate of 5-7%
  • Stringent Eligibility Requirement: To qualify for a term loan, banks will assess the company’s past financial performance. Generally, your SME must be fairly established and must be in operation for a couple of years at least. That said, some term loans are not available for start-up SMEs.

Where and How To Apply

Most major banks in Singapore offer Business Term Loans. For instance, DBS is offering a business loan that is open to all businesses, including companies that don’t qualify for government-assisted loans.

Eligibility

The eligibility criteria will vary depending on the bank and financial institution. However, there are the basic criteria that the business must fulfill:

  • Incorporated in Singapore
  • Must be in operation for at least 2 years
  • Must have a revenue of at least S$300,000
  • At least 30% owned by Singaporeans and/or Singapore Permanent Resident

Document Requirement

If you’re applying using ACRA or MyInfo Business, the bank or institution can retrieve most of the required information. That said, you don’t need to provide financial documents.

However, in some cases, you may need to provide additional information, such as:

  • ACRA Business Profile Information
  • Latest 2 Years’ Notice Of Assessment (NOA) Of All Directors
  • Latest Credit Bureau Singapore (CBS) Report Of All Directors
  • Latest 2 Years’ Company’s Financial Statements
  •  Latest 6 Months Of Bank Statements

How To Apply

  • Visit your preferred bank and ask for the application documents
  • Or submit your application online
  • Track your application status
  • Once approved, a loan officer will ask you to visit the bank so you can discuss the terms of the loan
  • You will be informed when the bank has disbursed the funds to your account.

Alternative Options For Businesses

Licensed Money Lenders in Singapore

Is Temporary Bridging Loan not an option? Don’t fret! You can look to licensed money lenders for your business financing needs.

Singapore’s licensed moneylending industry can provide you with plenty of gap financing options. 

For one, you can consider getting a business loan. With this loan, you can borrow up to S$200,000 at an interest rate of 5% to 15% per month. However, a business loan from licensed lenders in Singapore is considered a short-term loan since you’ll have up to 24 months to repay it.

Eligibility

  • Business must be registered in Singapore
  • Must be operational for at least one (1) year
  • Has a minimum turnover of S$60,000

Document Requirements

  • All directors and partners NRIC
  • Recent information report (Business Profile) from ACRA
  • Recent Income Tax Assessment Notice (both personal and from the company)
  • Recent financial statement
  • Recent invoices or business contracts
  • Recent utility bills under the company name
  • Recent 6-month bank statements
  • List of assets owned by the company, directors & partners (if any)
  • Office/shop tenancy agreement (if any)

Tips on Getting a Loan

1. Make Sure Your Business Records Are Accurate

When you’re applying for a business loan – whether it’s a government-assisted loan or a typical bank loan, it’s crucial to keep and organize your business records.

Financial institutions will take a look at your company’s past transactions, including bank statements, revenue, and payment records. Having the complete documents and requisite information on hand will make your loan application go smoothly.

2. Build A Good Credit Record

A high credit score will boost your chances of getting approved. If your business has a good credit history, it will signal to banks and financial institutions that you are responsible and can make timely repayments. That said, these institutions will recognize that they are taking a low risk when lending funds to your business.

Note that licensed money lenders still check credit scores. However, it will not play a huge part in evaluating your loan application. These legal lenders will also look at your income when approving loans.

3. Make Sure You Can Afford The Business Loan

Before applying for a business loan, determine whether you can afford the monthly loan repayment. That said, borrow only what you need and compare interest rates between institutions.

Consider applying for government-assisted loans, such as Temporary Bridging Loans, since it offers business financing at a lowered interest rate.

4. How Quickly You Need The Business Loan

Depending on the purpose of your loan, you need to ask yourself when you need the funds to be disbursed. If you need funds within a few days, you may need to find lenders that can approve your loan within a short time. For instance, licensed money lenders can release funds within the hour once the contract is signed.

Banks and other financial institutions, on the other hand, may take up to a week or two to approve your loan. This is because they have a more stringent loan application process.

Closing

Should you get a bridging loan or a term loan for your business? Ultimately, the best business loan will be what suits your needs more. But before you start looking into typical term loans, consider first whether you can qualify for government-assisted bridge loans, such as the Temporary Bridging Loan Programme (TBLP).

Key Takeaways

  • Bridge loans are a type of gap financing that will help boost your cash flow for your business operations.
  • Check your credit history and determine if you qualify for TBLP or typical business term loans.
  • Compare business loans online that provide repayment options with an affordable interest rate.

Loan Advisor takes the hassle out of comparing business loans. A one-stop loan comparison portal, Loan Advisor provides free, unbiased, and up-to-date information on the top loans with the best interest rates from legal money lenders in Singapore. Request up to three loan quotes today!

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