In these times of economic crisis that has swept the entire globe because of COVID-19 lockdown restrictions, your business might need to borrow a Singapore business loan in cash or in credit cards to continue operations.
Small and Medium Enterprises (SMEs) are the ones most threatened by the current situation. They need solutions fast, but the good thing here though is that there are options to get a business loan in Singapore from various credit and banking businesses.
The following is a guide in understanding and availing the small business loan Singapore, including their application process, effective interest rate per annum, maximum loan payments and rates, etc., in case you need help with your business financing in the company.
What are Small Business Loans?
The term is also known as SME loans and they pertain to any kind of SME micro loans (e.g. SME working capital loan, temporary bridging loan, business term loan, equity financing, personal loans, credit cards, etc.) offered to businesses to help with their team operations.
It is an umbrella term that has a variety of different financing options under it, involving different banking products such as personal loans, bank loans, and even credit cards.
You are free to choose which Singapore business loans you will get as there is an abundant number of SME micro lenders you can give your business loan application to.
Business Loan Options in Singapore
To choose which business loans in Singapore 2021 fit your current company situation, listed below are the most common types of business loans in Singapore.
Take your time sorting through and understanding the different types of SME micro loan before applying for loans in Singapore for a smoother transaction when you get one.
Standard Unsecured Business Loan
This type of loan is unsecured, meaning you do not have to present any sort of collateral to avail of the loan. They are offered by most leading banks in Singapore 2021 (e.g. applying for a loan OCBC), and you can check their eligibility and requirements to see if your businesses qualify.
They usually need to know your business’ revenue and how long it has been around on top of the other paperwork necessary. You can then choose to pay the micro loan within the repayment period of 5 years or 2 years and under, including its interest rate per annum.
These are the most common business financing capital types for repayment of business needs or as a working capital loan. You can borrow a maximum loan amount of about SGD 50,000 to 300,000, which you can use as unsecured business funds for the need you have to address.
Repayment installments for the loan amount are set by the lenders with a fixed interest rate. Also, these repayments are paid equally per month, for a loan tenure of 3 years to 5 years, as mentioned earlier.
SME Working Capital
Unlike the standard business loan, the SME working capital loan is birthed as financing assistance from the Singapore government for the success of the enterprise operating in Singapore.
It was launched in June 2016 according to news reports and enhanced after more than 3 years of planning, and is now following the Budget 2021 scheme for businesses in Singapore.
Small and medium businesses can have a maximum loan of up to SGD 1 million as working capital loans, which is aimed to increase interest in establishing an SME business enterprise in the country especially after the COVID-19 outbreak.
More than being a loan for SMEs and individual entrepreneurs’ funds, this program also aims to boost the economy of the country.
The SMEs and companies that want to experience this SME loan should have only a maximum of 200 employees to be eligible. The loan tenure lasts from 1 year to 5 years after the business loan application is filed.
This scheme is available for all business loans that are registered in Singapore and are at least 30% owned by Singaporeans or permanent residents. The effective interest rate paid per annum for this type of loan is lower compared to other SME loans.
Temporary Bridging Loan
Because of COVID-19, recent news in Singapore has revealed the creation of another regulated business funding in the form of the temporary bridging loan. This is not applicable for only SMEs however, all businesses that are at least 30% owned by a resident in the country can apply for the temporary bridging loan.
It is a scheme created to help tide all establishments that have been threatened by the lockdowns imposed. You can loan up to SGD 5 million that has payments with a loan tenure of up to 5 years.
Funding for SMEs at least 30% owned by a Singaporean citizen especially in terms of capital is crucial, as is reported in various business news outlets.
Funds for business ventures are running low, as the past 6 months have greatly affected the economy. With a global economic crisis threatening to close business operations, there is an increased demand for personal loans, company credit cards, bank loan products, equity financing, and other funding options.
In the next 1 year, 2 years, 3 years, 4 years, or 5 years, economists’ assessment has predicted significant declines in economic activity, hence the need for interventions such as the mentioned business term loan.
Startup Business Loan
The startup business loan is like a mini version of the standard business SME loans. This means that it has a smaller loan amount cap, usually only up to SGD 100,000 you can use as business capital, with retained term loan tenor.
It is also known as the “first business loan” that is for those who do not have an established business yet. You only have to be in operation for a few months and there is no need to have a strong financial history to be eligible for this SME loan.
These are loans that are in the form of a credit line working like company credit cards which are used to pay for the value of stocks from suppliers. These could come in finance inventories or material supplies, thus also serving as business capital.
Letters of Credit or LC can be issued to stock sources from overseas. You have 90-120 days (3-6 months) as a repayment period for this loan, paying not just the loan amount but its interest rates as well, just like in credit cards.
For SMEs that have an established credit history with large companies, they can avail of factoring/receivables financing. A financial advance of 80 to 90% of your outstanding customer invoice value can be loaned.
These are offered by companies with long credit payment terms. The bank can offer this SME loan to those that are long-term holders of bank credit cards and have no late charges incurred or those who have availed home loans or personal loans and were able to repay on time as well.
Similar to mortgage loans, a special type of home loan, for individuals are property financing. If you are an entrepreneur who wants to purchase a commercial or industrial property but has no current capacity to do so, you can get this loan.
The lender holds the right of ownership until you can repay the borrowed amount, just like in home loans. In case you choose to default, the property will be seized by the credit institution, again like that of the home loan.
Another type of specific business term loan is equipment financing, which also works like home loans.
The lender pays for your purchase of equipment or machinery after assessment, and you repay them in installments. Similar to that of property financing, the purchase serves as collateral which can be seized if you are unable to submit to the repayment requirements (certain home loans work the same way).
These loans are typically structured as leasing or as hire purchases, unlike personal loans with their flexible terms and conditions.
Where to Apply for A Business Loan?
In Singapore, there are a variety of credit establishments that offer small business loans, with varying interest rates. The following are some of your business’ options that you can apply to solve your financial situation.
Government-assisted financing schemes
The government of Singapore provides financing schemes for small and medium enterprises in the form of a bank loan or other SME loan form with corresponding interest rates.
They have access to about SGD 100,000 worth of working capital. These can be used for managing daily activities and regulate the cashflow of your firm.
The Singaporean government works with participating banks and financial institutions to assist the SMEs with their financial obligations.
As with any other type of bank loan (e.g. credit cards, etc.), you can also avail of the small business cash loan from the banks here in Singapore. They usually give higher loan amounts, usually SGD500K but you have to make sure to have a good credit history to be eligible.
Banks provide almost the lowest interest rates of those available in the market. They require extensive documents and take a relatively slower pace when it comes to approving the loan, but you can be sure to get a higher amount with competitive terms and conditions.
Most of the time, to be eligible for the best bank loans, you will have to open a bank account or be a holder of their credit cards.
Opening a bank account or having credit cards usually have their processing fee waived, such as for OCBC business credit cards. When you get a loan from OCBC, the amount can be charged in your credit cards, like how loans in other banks work.
Loans from banks are perhaps one of the most well-known and trusted, as they have low-interest rates and higher loan caps.
Those that provide financial services in terms of loans, insurance, and other money-related activities, but are not banks, are called financial institutions. And, you can also get your small business loan here, with an interest rate capped at about 5%.
In Singapore, the likes of Hong Leong Finance, Singapura Finance, Sing Investments & Finance, and many others are present in the market to provide capital. They have years of quality service in their bags, and you can get amazing loans and deals from them as well.
If you are not eligible for the first three loans mentioned or if your situation cannot afford to wait for their approval processes, you can borrow from licensed moneylenders.
These firms offer higher interest rates and smaller loans, usually up to SGD200K amounts for your capital here in Singapore, but they are regulated by officials as well.
Despite their drawbacks, moneylenders provide faster loan approvals, especially when compared to banks. Also, you can be eligible to apply for their loan despite having a bad credit history (unlike the bank that demands a good credit history).
Yet another option for your business loan is peer-to-peer crowdfunding that has become popularized in Singapore in recent years. Online platforms are the ones that lend the money to you, and you repay them with the corresponding interest rate of your borrowed amount.
Unlike traditional lending schemes like banks and their business credit cards, you are the one to use the bank loans of the handler of the online platform, and you repay them with a greater interest rate. The loan amount could reach up to SGD150 000. There is of course a high risk for this type of lending, but it has proven to become a hit in many Asian countries starting the last decade.
Typical Eligibility and Requirements
If you are interested in getting a small business loan from any of the above-mentioned options, you can check whether or not you are eligible with the following list:
- Must be between 21 (some credit establishments accept 18 years old and above) to 65 years old
- Earning a minimum of SGD 30,000 annually if a salaried employee or SGD 40, 000 working through commissions or is self-employed (com sg) for Singaporeans and permanent residents.
For foreigners, required to have SGD 40,000 income and have a valid employment pass of at least 6 months to be eligible.
Also, you must prepare the necessary documents as requirements for the application:
- NRIC (National Registration Identity Cards, photocopy the front and back)
- Credit cards and bank history proofs
- Proof of residency
- Employment documents
*Take note that these requirements vary from institution to institution.
These will be used to signify your eligibility for the loan as well as credit score. If you are unable to provide such documents, your loan might be disapproved (com sg).
After preparing the documents, you will have to do the following steps to complete your application process:
- Complete an online loan application form with complete details
- Sign a surety if it applies
- Submit supporting documents*
For foreign individuals, they will be asked to give additional requirements to support their claims of being employed in Singapore. This could include:
- Original valid employment pass
- Copy of the tenancy agreement
- Appointment letters from their employers
- Bank statements (additional details can be asked in their customer service office).
Banks vs Moneylenders vs FIs vs Government-Assisted Schemes
To help you decide which of the above-mentioned options is the best fit for your current financial situation, the following table is a quick guide. It compares the loan details from banks, moneylender, and other credit institutions.
|Banks||Moneylenders||Financial Institutions||Government-Assisted Schemes|
|Processing Fee||Minimum to none||A few hundred dollars||Minimum||None|
What is the Best Option for me?
If you are on the verge of deciding on getting SME loans, you might be wondering which of the above-mentioned options is best for you. In all honesty, the decision is yours to make.
Singapore is home to a variety of financial companies that are willing to help you with your finances. Just first know your needs, and then you can research which firm you would like to apply to.
Going out to take a small business loan, or any loan for that matter is a huge step. You should consider well the terms and conditions set by your loan agency before signing one.
Know that you will have to repay the loan within the set period, otherwise you can find yourself in more debt than before you started.
Planning and budgeting is a crucial activity you have to undertake to make sure that you are ready for the responsibility of taking out a loan.
There is no need to be afraid of taking the risk of borrowing money, however. Loan comparison portals like Loan Advisor are more than willing to help you make your best decision.
They have researched comparing the different loan options available, and you only have to choose which you would like to go to. They are a reliable and convenient friend when it comes to borrowing money to ease your business’ financial burdens.
Loan Advisor is one of the most trustworthy loan comparison sites in the country. You can read the guides and reviews of past customers on their site to help you choose which option you think you will flourish in.
They then give you advice on how you can maximize your choices and enjoy a smooth-sailing business loan transaction.