Running an SME in Singapore comes with a lot of challenges. For some, they’re thinking about expanding their business while others are still looking for funding to get things rolling.
If you’re the latter, then you need to start looking for options to improve your cash flow. One of which is getting a startup business loan.
To help you get started, this article lists some of the best start up business loan Singapore as well as alternative funding options. Plus, a few tips on how to prepare for a loan application.
Aside from stiff competition, SMEs also face other challenges, such as high rental costs and operational costs. That said, taking up a business loan becomes essential.
A start-up business loan is also called the “first business loan”. Think of it as a mini version of a regular business loan.
It offers a smaller loan amount – typically up to $100,000. Best of all, it’s easy to get this type of loan. Your business only needs to be in operation for a few months, plus it doesn’t require a strong financial history.
You can use this loan to fund whatever your business needs, such as:
- Improving cash flow
- Enhancing financial budgeting
- Inventory and equipment
- Improving credit score
- Take advantage of expansion opportunities
The Singapore government has launched several funding initiatives to assist SME owners.
Refer to the table below for some of the best SME loans in Singapore. You can find more options on loan comparison websites.
|Startup Loan Product||Interest Rate per annum||Maximum Loan Amount||Repayment Period|
|SME Micro Loan||3.5-4%||$100,000||1-5 years|
|SME Venture Loan||2.5-11%||$5,000,000||3-5 years|
|First Business Loan||3.2-4.5%||$300,000||1-5 years|
|Startup Business Loan for Medical Doctors and Dentists||2.5-4.5%||$500,000||1-5 years|
|Personal Loan for Business||6-9%||12x of monthly income||1-5 years|
|Unsecured Loan||12-18%||$200,000||3-24 months|
|Invoice Factoring||1-1.5%||Can reach up to 80% of invoice value||30-120 days|
Whether your business requires a large or small loan amount, you might want to compare the loan packages offered by different banks and financial institutions.
Not sure where to start?
The table below lists the banks in Singapore that offer start-up business loans.
|Bank or Financial Institution||Start-up Business Loan Product|
|DBS Bank||SME Micro Loan|
|Maybank||SME Micro Loan|
|OCBC||First Business Loan|
|UOB||SME Micro Loan|
|Standard Chartered Bank||SME Micro Loan|
|RHB Bank||SME Micro Loan|
Unfortunately, some SMEs struggle to secure bank loans.
Higher interest rates and the need for collateral are some of the major reasons why startups are unable to get financing. So what are the other options for those in need of funding?
The table below lists a few options for startup funding.
|Alternative Financing Option||Pros||Cons|
|Government Grants and Programs||Different types of grants and programs for specific industries:
||Most startup grants require businesses to have already incorporated their company before applying.
Rigorous application process and requirements
|Crowdfunding Loan||Different types of crowdfunding to choose from.
Financing amounts can range from $5,000 to $5 million+
Less stringent eligibility requirements than banks
Receive cash financing in as fast as 1 to 3 business days.
|Have higher interest rates than bank loans
Shorter track record than banks
|Angel Investment||Have access to a significant pool of funds.
Financing amounts can range from $50,000 to $500,000.
|Startup businesses will need to dilute the ownership equity of their company.
SMEs need to comply with the investors’ preferences.
Angel investors have specific requirements before investing.
|Personal Loan||Low interest rates
Usually doesn’t require collateral
|Lower funding amount|
|Personal Savings||Debt and interest-free
No need to sell shares of your company
|Available funds may not be enough
Risk losing personal savings accounts in case the business fails.
|Loan from Family and Friends||Low interest rates while others are interest-free||Late payment or non-payment may affect personal relationships.|
SMEs have plenty of funding options. It can range from banks to government grants to private financial institutions. But before you take the next big step, here are a few questions you should ask yourself to make an informed choice.
Before approaching any financial institution, it’s best to know how much you need. That said, do a careful calculation of your business needs, including equipment, marketing, payroll, etc.
Applying for a business loan amount lower than what you need can affect your business’ working capital, leading to possible cash flow problems. Applying for a higher amount, on the other hand, can lead to unnecessary future expenses.
Additionally, knowing how much you need can help you determine which financing institution to approach.
Consider these financing options depending on the amount of financing you need:
- Banks (Line of Credit): $5,000 to $50,000
- Revenue-based Financing: $50,000 to $1 million
- Venture Capital: $5 million to $100 million+
Some financing options require SMEs to dilute the ownership equity of their business. That said, before you choose a financing option, think about what you’re willing to give up.
For instance, when you apply for a business loan from banks, you don’t have to worry about equity dilution. The same is true for revenue-based financing.
However, if you choose venture capital firms, you’ll have to dilute 25% to 45% of your business in exchange for $2 million to $5 million capital. An extra equity dilution of 10% to 30% is needed in exchange for $5 million to $45 million.
Banks: Fixed interest means you’ll enjoy a fixed repayment schedule. As long as you don’t miss a payment, you’ll know exactly how much you’ll need to pay for the succeeding months or years.
Revenue-based Financing: This is a good choice if you want a flexible repayment option.
Venture Capital Financing: With this financing option, the investor will provide you the capital you need to get started.
In exchange, they receive an ownership stake in your company. If the start-up is successful, you and the investor will reap the rewards. If it fails, you need to pay back the capital – or when the company is sold.
- Banks: 3-6 months
- Revenue-based Financing: 4 weeks from application to funding
- Venture Capital Financing: 6 months to a year of paperwork and meetings
- Banks: You’re secured against business and personal assets
- Revenue-based Financing: You’re secured against business assets
- Venture Capital Financing: No security required
- Banks: There are financing restrictions
- Revenue-based Financing: No control relinquished
- Venture Capital Financing: Huge managerial control. Since investors will have equity in your company, you’ll have to make sure that your business goals are aligned.
When you take on a business loan from banks, they offer no guidance in growing your business. Revenue-based financing, on the other hand, is more flexible. They can either be as involved or as hands-off as you want.
But with venture capital financing, the investors will have a say in how you run your business. Since they provide capital, they can offer guidance as well as business connections.
Before you start applying for a loan, you must first have a detailed business plan. It should include:
- An executive summary
- Detailed overview of the business including the management team
- Description of your products or services
- Business and marketing strategies
- Comprehensive competitor analysis
As part of your business plan, you must provide additional information on how your business will use the loan. Lastly, you may also need to provide financial reports and forecasts. In doing so, the bank will feel assured that you’ll be able to repay the loan.
To increase your likelihood of getting approved, you need to prove your capabilities. This means providing proof that you have the applicable skills necessary to run your business.
That said, list your relevant professional experience in your loan application. These experiences should be relevant to your business. If you have a management team, it’s good to provide resumes.
For first-time borrowers of a business loan, banks may look into the borrower’s personal financial and credit history.
You need to check your credit score. Fix any issues before submitting a business loan application. Banks and other financial institutions are more likely to approve borrowers with strong credit scores and several years of credit history.
Do your due diligence and gather business loan information from different banks. Compare their loan terms, including interest rates, loan tenure, fees and charges. Additionally, check their baseline requirements, such as:
- Minimum revenue requirements
- Minimum years of operational history
In doing so, you can weed out banks where you don’t qualify for.
It’s also a good idea to approach banks you have a history with. Why? Because such banks will know your credit history and have a better understanding of your trustworthiness as a borrower.
It’s not uncommon for small and medium enterprise Singapore owners to be rejected for a bank loan. It can be because of several reasons:
- The operational history of the company may not have met the minimum requirements
- The business’ annual revenue is less than the required amount.
- You have a low personal credit score
So what do you do?
If the reason behind the rejection is due to a sparse business plan, then it could be easily addressed. Make the necessary changes and improvements. For instance, submit a more detailed business plan.
However, if the issue is much more serious, it may be beneficial to seek alternative financing options.
There is a wide range of business loan options in Singapore. Whether you need extra capital or need additional cash flow, there is a suitable financial institution that will fulfill your financing needs.
But these loan options do not guarantee a quick and smooth approval process – especially for startups.
If you need an additional alternative, you can consider getting a loan from a credible moneylender – Bugis Credit Pte Ltd. is a licensed moneylender known for its excellent service.
You can get in touch with their financial experts to find out more about the types of business loans available.