Types of Small Business Loans in Singapore

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The COVID-19 outburst carried with it a sequence of events in the hopes to slow down the spread of the pandemic. Though, these measures also began revenue streams of small and medium businesses to dry out. With that said, survival has become the main worry for a lot of SMEs.

Many small and medium enterprises are facing complications in paying rent, suppliers, staff, and are stressed to stay afloat amongst the economic slowdown. Some SME owners have started expanding their products to find other income streams. Others have taken other jobs to link the gap during these difficult times.

Gratefully, a business loan or funding can help. With the help of Enterprise Singapore, the government proposes special assistance loan packages to help SMEs get the funds they require to remain operating. Apart from these, local banks and financial institutions also offer an extensive range of loan products.

What are the business loan options in Singapore?

To get the finances they need, SME owners can apply for a business loan. There are many types of loans. Some financing products are offered for whatsoever a business requires, like managing cash flow or paying the rent. Added financial products are presented for precise needs, like a property loan or machinery and equipment loans.

Some of the most common business loan types in Singapore are as follows.

Standard business loan

There is no collateral required in this loan which means this is an unsecured business loan, like property or equipment. This type of loan is common among SMEs due to its flexibility. You can use this to finance your day-to-day functioning needs like:

  • Payroll
  • Inventory purchases
  • Rental fee
  • To finance plans of business expansion

Furthermore, for traditional SME loans, you can pick a repayment time of up to 5 years. You can opt to apply for this type of loan from all chief banks, like DBS, OCBC, and UOB.

This is great for those looking for operating capital.

SME working capital loan

When the pandemic happened, the Singapore Government initiated government-assisted business loans for helping out SMEs in the country. Directed by Enterprise Singapore and joining financial institutions (FI), they offer affordable loans which are striking to SMEs. These types of loans contain a government risk-share of up to 90%.

Small and medium enterprise working capital loan is one of those government-assisted business loans that are accessible to local SMEs with an extreme of 200 employees. The Singapore government works with banks to offer loans of up to $1 million per pledger. The loan tenancy is within 1-5 years.

A working capital loan is for businesses that are:

  • Registered and physically present in Singapore, and
  • Owned at least 30% locally.

Temporary bidging loan

This is one of the government-assisted business loans to help businesses connect the gap in these trying times. This kind of loan is not only offered to SMEs. It is open to any Singapore-registered companies which are at least 30% locally owned. Businesses can borrow up to $5 million and the repayment time is up to 5 years.

Start-up business loan

Occasionally called a “first business loan,” this is an unsecured loan that caters to new start-ups. Think of it as a mini version of a typical business loan. It offers a lower loan amount of up to $100,000, making it much easier for start-up businesses to be eligible for. Moreover, with a start-up business loan, SMEs are only required to be in operation for a few months and do not need a strong financial past.

Online moneylenders and personal loans

There are various types of loans accessible to SMEs in Singapore. The government also introduced government-assisted loans to guarantee that businesses will get the capital they require. But your business loan application might still be in vain.

In case your business loan application gets rejected or you do not meet the requirements for an SME business loan, you may go over some other substitutes. Like you can look up licensed moneylenders for financial assistance.

Licensed moneylenders in Singapore are permitted by the Ministry of Law. They are acceptable to provide loans to people of Singapore, permanent residents, and foreigners with a legal employment pass.

These licensed moneylenders can provide both SME business loans and personal loans. With the maximum loan amount of up to S$200,000 with the interest and fees between 5% to 15%, things might differ from lender to lender for SME business loans. For personal loans, the maximum loan amount is up to 6 times your monthly income with the maximum interest rest of 4% that the licensed moneylenders can charge. Both the loans have their own criteria of eligibility.

You can use SME business loans for the active needs of your company, such as:

  • Inventory
  • Advertising
  • Emergency expenses
  • Renovating your business premises
  • Paying your suppliers
  • Payroll
  • Help with the cash flow

On the other hand, you can get a personal loan instead if you do not meet the requirements for the SME business loan. With a personal loan, you can use the money for whatsoever you require. But you should keep in your mind that the maximum loan amount for an unsecured loan is up to six times your monthly income.

Equity financing

Equity business financing comprises levitation funds through trading shares of your business to investors. For example, SMEs can ponder selling shares of equity if they do not have enough effective cash. This permits SMEs to fulfill their business financing needs. It’s an exchange of ownership interest for capital.

This is a good possibility for those who do not meet the requirements for SME loans from banks or if the interest payments of a loan are so expensively high.

FundedHere

FundedHere is one of the three most popular crowdfunding stages in Singapore. It emphasizes start-up companies and permits them to raise as much as $1 million in just 35 days. For this cause, it’s a good option for businesses less than a year old. You will only have to pay 6% of the platform fee and 2% of the fee on the total equity raised. Finest of all, if you raise more than your goal, you can keep the funds.

This platform has two kinds of business financing:

  • Equity Financing: Early-stage start-up companies sell their equity for financing.
  • Debt Financing: FundedHere’s a List of bond deals that offer debt financing to publicly registered companies. It is highly doubtful that SMEs are listed.

Eligibility criteria for equity financing:

  • Must qualify as “Early-Stage”.
  • Must be united for at least three months.
  • Have at least one Singaporean founder.
  • Must be majority-owned by Singaporean citizen(s) or Permanent Resident(s).
  • Have at least $50,000 in contributed capital.

Fundnel

Fundnel is another crowdsourcing platform for start-ups looking for larger equity financing. This platform is open and only charges a small fee of 5%. As well, it also allows SMEs to keep more than their original target.

Fundnel has a hefty investor network of more than 7,000 and a solid track record. The total value of its accomplished deals amounts to around $100 million. Additionally, it offers digitized paperwork and a unified portal for communication with investors, making the fundraising procedure easy.

Eligibility criteria:

Fundnel’s website does not clarify many details about their eligibility criteria. Yet, Fundnel expects interviewees to reveal detailed information on these areas:

  • Management background
  • Product and brand information
  • Customer focus
  • Financial performance
  • Industry/sector performance
  • Deal and exit potential

Conclusion

All thanks to Enterprise Singapore, the government has helped various SMEs get back on their feet in spite of the complications brought about by the COVID-19 pandemic. To choose the best SME loans for your small business, take a look at the interest rates, loan tenure, and the maximum loan amount. Different banks offer different rates but it stays between 3.5% and 7%.

Though, for start-up entrepreneurs searching to get a start-up business loan, you might want to reflect on substitute financing options. For example, you can consider equity financing or you can borrow from licensed moneylenders.

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