If you are thinking of having your own start-up business, know that many lenders can help you financially. While it is easier for established businesses to get loans, there are many types of financing that a start-up business could avail of.
Remember that businesses are about passion and providing the right services and products to help your customers. So, if you are ready, read on and find some of the best start-up business loans to get your new business running smoothly.
What is a Start-up Business Loan?
A start-up business loan, also known as a first business loan, is a smaller version of a regular business loan. These loans are made available to help new entrepreneurs meet capital requirements and cover start-up costs.
Funding a Start-Up Business
One crucial step in starting your own business is to find a good source of funding. This funding is often secured through getting a business loan or finding a good investor. Typically, these funds will be used for:
- Business expansion
- Additional working capital
- Operational expenses
- Purchasing equipment
- Adding inventory
Is It Hard to Get a Start-up Business Loan?
It may be hard to qualify for traditional loans if you are a new business, as banks and other financial institutions have strict rules laid out. Typically, your business must be registered in Singapore and operational for at least one (1) year. Check with your loan provider about the minimum turnover and other requirements.
Start-up Business Loan Options
A start-up business will face many challenges and as a business owner, you need to be ready at all times. Don’t worry, you have plenty of financing options. Just make sure to fulfill all the requirements each financial institution requires from you, and you’re good to go.
Here are some options to consider:
Government-backed Fundings
The government has established a supportive ecosystem for small businesses in Singapore. This support is shown through grants and financial schemes that help start-ups grow in the early stages of the business. We’ve listed some of the best grants and funding below:
1. Startup SG
Startup SG is a scheme that provides not only funding but also guidance and mentorship to new businesses in Singapore. Here’s one that is solely granted to first-time entrepreneurs.
Startup SG Founder Grant
This grant provides a start-up capital of S$30,000. A borrower may apply for this grant through an Accredited Mentorship Partner (AMP). Find existing partners here.
Eligibility and Requirements
- For first-time entrepreneurs only (Singapore Citizens and Permanent Residents)
- Must hold at least 30% equity of the company
- Must not be a full-time employee at another company
2. SME Working Capital Loan
The Singapore government introduced Enterprise Singapore’s SME Working Capital Loan to help cope with COVID-19’s economic effects. It uses the country’s Solidarity Budget as its primary source.
SME Working Capital allows Enterprise Singapore to take on 90% of a startup’s risk. Any interested enterprise may approach participating FIs to apply.
Business Bank Loans
While banks may have stricter requirements and stringent credit checks, they could still be an excellent source of funds if you qualify. Below are five business bank loans to consider:
1. OCBC Business First Loan
Businesses can receive up to S$100,000 from OCBC and repay it within 4 years. However, the bank will assess the business’ risk factors and may evaluate the interest rate based on this.
2. DBS Digital Business Loan
DBS offers one of the most extensive loans for startups at S$200,000 with a 5-year repayment period. The bank works with the government’s Resilience Budget. Plus, you can pay the interest alone during the loan’s first year.
3. Standard Chartered Business Installment Loan
Standard Chartered Bank offers business loans between S$70,000 to S$300,000 without collateral as startup loans. You can pay the entire financing between one to three years with an EIR cap of 11%. It’s up to the bank evaluators to provide the accurate EIR figure per company.
4. UOB BizMoney Loan
UOB Bizmoney has one of the biggest loan caps for start-ups at S$350,000 with a repayment period of 5 years with an EIR of 10.88% yearly. In addition, it has a 2% processing and S $500 annual fee.
5. Maybank Business Term Loan
Qualified businesses can receive up to S $500,000 from Maybank’s startup business loan. These businesses must be at least three years old and have a minimal annual turnover of S $300,000.
To summarize:
| OCBC Business First Loan | DBS Digital Business Loan | SC Business Installment Loan | UOB BizMoney Loan | Maybank Business Term Loan | |
|---|---|---|---|---|---|
| Loan Amount | S$100K | S$200K | S$300K | S$350K | S$500K |
| Loan Tenure | Up to 5 years | Up to 4 years | Up to 3 years | Up to 5 years | Up to 5 years |
| Interest | Per bank assessment | Per bank assessment | Up to 11% p.a. | 10.88% p.a. | Per bank assessment |
Licensed Moneylenders
Licensed moneylenders are also an excellent source of start-up business loans. If you think you won’t qualify for a bank loan, you can check loan offerings from licensed moneylenders that can suit you. Aside from business loans, you can also opt for personal loans and monthly loans to finance your business.
At a Glance: Loan Options
| Personal Loan | Monthly Loan | Business Loan | |
|---|---|---|---|
| Minimum Income | S$2,000 | S$2,000 | Has a minimum turnover of S$60,000 |
| Loan Amount | Up to six times your monthly income | Up to six times your monthly income | Up to S$200,000 |
| Interest Rate | 1% to 4% | 1% to 4% | 5% to 15% |
| Loan Tenure | Up to 1 year | Up to 1 year | Up to 2 years |
| Eligibility | At least 18 years old | At least 18 years old |
|
Late payment fees of S$60 per month will be charged for personal and monthly loans. For business loans, there’s no processing fee and the late payment fee will vary depending on the agreement.
Things to Consider Before Applying for a Start-up Business Loan
To get things rolling smoothly for your business, you should find a loan that best suits your needs. But before that, there are other crucial things to consider, which include
-
The amount of funding you need
Knowing how much funding you need is critical to every start-up. Be realistic and obtain a fund that you know your business can repay.
-
Having the proper and correct documents
Having incomplete or submitting the wrong requirement is one of the most common reasons for a loan to be rejected. Remember that preparation is vital when it comes to business loan applications. It will also save you time and will make the approval process faster.
-
Having a business plan
A business plan is also essential when pursuing a business loan. It adds confidence to lenders and investors to put money into your business.
Finding the Best Startup Business Loan in Singapore
Finding the best startup loan can be pretty challenging. You might find that you’ll need to decide between at least 30 financial products to find the best working capital loan for your growing company. Here are the three best ways to find the best financing in Singapore.
1. Shop Around
It could be challenging, but shopping around is the best way to find SME loans with competitive interest rates. Once you’ve found the perfect loan amount suitable for your monthly income, consider the best interest rate per year with flexible repayment terms that suits your cash flow.
2. There Are Many Alternative Financing Options to Banks
If you’re planning a startup to get out of debt, most banks will usually limit or reject your business loan application. You can count on other financing institutions to help you. Trade unions and licensed moneylenders in Singapore provide business loan options to individuals they deem trustworthy.
3. Narrowing Down Your Moneylender Choices
While moneylenders might not be a comprehensive source of funds, they could be an excellent option for those who need an extra boost. However, make sure you’re working with reliable money lenders in Singapore, which you can find in the Registry of Moneylenders.
Requirements and Eligibility To Have a Startup Business Loan
Singapore is one of the most startup-friendly countries in the world. However, despite easy access to small company financing, it has some strict requirements. Doing so safeguards the abuse of financial institutions and borrowers simultaneously.
Here are all the essential requirements and eligibility to use Singapore’s small company-friendly unsecured loan:
Eligibility
- Registered Business in Singapore
- Operational For More Than One Year
- Minimum Annual Turnover of S $60,000
Document Requirements:
Once you’ve chosen the loan provider, you’ll work with, make sure you prepare all these documents. The sooner you can provide these documents, the shorter your application waiting period for approval.
- NRIC of Directors and Partners
- Recent Business Profile data from Accounting and Corporate Regulatory Authority
- Recent income tax assessment notice (both business owners and company tax assessments)
- Recent financial statement
- Recent invoices and business contracts
- Recent utility bills under the company’s name
- Recent 6-month bank statements
- All assets the company, directors, and partners own
- Office or shop tenancy agreement
Can I Use a Business Loan as a Startup Loan?
Any business that can comply with any financial institution’s requirements and repay their regular monthly repayments can use business loans as startup loans. However, some startup businesses on a shoestring budget have less than a year of establishment and are highly likely to earn less than their regular monthly dues.
How Do Startups Traditionally Get Financing?
Startups work with Enterprise Singapore or Angel Investors who are compelled by the business idea. In doing so, they get enough financing to purchase resources that can take their business performance to the next level.
Closing
There are plenty of lending options for start-up businesses in Singapore. But before you make the big step of getting a business loan, make sure you know the risks and have a solid plan to repay the loan.
Takeaways
- Before choosing a business loan provider, shop around and compare terms and interest rates.
- An excellent alternative to bank loans is a personal or business loan from a licensed moneylender.
- Gather your paperwork early to make the loan application process more smooth and more manageable.
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