The business loan options in Singapore are rather limited, especially for small and medium enterprises and startups. This guide serves to provide some information on the various loan options in Singapore for small business. As always, contact us if you have any questions.
What is The Use of a Business Loan?
Business loans are like personal loans but are specially designed for business purposes. You can borrow money for your company to be used for startup capital, finance expansion, or simply for operational purposes.
The terms for these types of loans are mostly long with fixed interest rates, although these may vary.
Who Can Get a Business Loan?
If you want to expand your company, you can apply for a loan once they passed the eligibility requirements. For example, your company must have a minimum monthly turnover to qualify. If your company demonstrates that it has the capacity to repay, you’re likely to get better payment terms.
Some banks and lending institutions may require you to have profits over the last 2 years to qualify for a loan. These terms may vary from lender to lender and bank to bank.
In Singapore, there are credit schemes like the SME Micro Loan scheme where Spring Singapore shares the risk of default with banks. This can mean that it is easier for your business to qualify for these loans.
Is it Smart to Get a Business Loan?
Business loans can help with cash flow and aid companies through tough times which will give a company a chance of success. It can also be used to pay off big expenses like expansion plans or workplace improvement. Terms and debt repayments typically vary from medium to long term loans.
No matter the amount you need, it is best to pay what you borrowed as quickly as you can.
What You Should Consider When Getting a Business Loan?
Before getting any kind of loan, you need to think about the purpose and the amount you need. You should also study the current financial shape of the company, how urgently you need the money and the amount of collateral you have to put up for the loan.
Business loans are not given for free. Lenders will charge an interest rate according to the amount and the duration of the contract. The interest rate may also vary depending on your company's credit history, the personal credit history of the loan's guarantors and typically the directors and/or shareholders.
Why Do Businesses Need Loans?
Businesses need loans mainly because they need financial assistance to expand or keep their company afloat. It can also be used to relocate or upgrade their workplace, acquire new machinery, establish a new product line or grow their team size. In other words, business loans are used to improve an enterprise's status.
Where is The Best Place to Apply for a Business Loan?
You may want to consider getting it from a bank. Banks often have more predictable rates and a lower possibility of being bought or sold. Banks also offer lower rates than other institutions. However, they tend to have higher requirements for their application process because banks offer long-term payment schemes to companies.
Some licensed lending companies also lend money to small and medium enterprises but with a higher interest rate and shorter term.
Which Banks Give Out Business Loans?
Almost all banks offer loans for businesses. You can find more information available on their respective website. You can also consider borrowing from peer to peer lending platforms or licensed lending companies, specifically designed for companies.
Consider all the requirements, interest rates, repayment terms and other terms and conditions before you decide to borrow money. You can discuss all these things with your loan officer or consultant during application.
Whom to Get Business Loans From?
You can get a business loan from a bank because of the longer term and lower interest rate. But if you or your company have a bad credit history or even insufficient credit history, some banks may not approve your loan.
If this happens, you may refer to companies that provide microloan programs. This includes smaller licensed lenders. You can typically borrow up to $150,000 from licensed lenders.
What are the Business Loan Terms?
The terms of these types of loans usually refer to the monthly payment and the duration of repayment program given by the lender. The requirements to getting a good term business loan include good personal and business credit, large asset base, solid business plan and industry experience. Banks and credit institutions can offer up to 5 years of payment schemes with at least 1% interest rates per month.
Are Business Loans Easy to Get?
If you have bad credit, your risk of defaulting on a loan is perceived to be high. Banks will then charge a higher interest rate, or may decline to lend you funds.
Banks will tend to look at the previous two to three years of your company's financial performance. If the company is relatively new, they will typically require a detailed financial projection and a business plan.
What are Small Business Loans?
Small business loans are loans that are provided to small businesses for various purposes. One such scheme is called the SME Micro Loan. If you have 10 or fewer employees, you may qualify for this loan, subject to loan approval.
This Micro Loan may have less restrictive requirements which enable a small company to secure funds easily to help jump start their operation or start-up capital. Nowadays banks provide customized products to meet the borrowers' needs.
Whom Do I Get Small Business Loans From?
Typically you can get a small business loan from a licensed lender, peer to peer lending platform or a bank. Your options may vary depending on your company's credit history, previous financial performance and business model. In general, it's wise to shop around to get the best rate and loan terms before deciding on where to borrow from.
How Can I Get a Small Business Loan?
To apply for a business loan, you have to submit documents relating to the company's projections, personal finances of the owner and documents of assets that can be pledged as collateral. These mandatory documents will help the lender assess the capability of the borrower to pay for the loan.
You should know that in Singapore, it is typical for an SME owner to have to sign a personal guarantee to qualify for the loan, especially if it's a non-collateral loan.
What is the Typical Business Loan Interest Rate?
Interest rates differ between banks and institutions. You may call the banks or visit the websites of the various institutions to find out more. Do remember to ask specific questions about the fine print involved in the loan application.
Also, find out if the interest rates are fixed or variable. A fixed rate will remain constant throughout the loan period. A variable rate varies according to general annual percentage rate fluctuations. The risk of a variable interest rate is that it may seem low at first but can double or triple later.