If you’re a small business or SME (small-to-medium enterprise) owner in need of financial support to enhance cash flow, it’s important to understand the various loan options available in Singapore before making a full commitment.
Here’s a look at some of the SME loan types that are currently being offered and what to consider if you are having problems qualifying for one.
Types of Business Loans in Singapore
The term ‘business loan’ refers to any kind of financial assistance given to a business entity. These loans vary considerably based on their purpose, be it for cash flow management, growth initiatives, specific needs like machinery/equipment or property, or particular business types such as start-ups.
Traditional Business Loan
An unsecured loan, this ‘standard’ business loan doesn’t require any collateral. Choose a repayment duration of up to 5 years. Major local banks like DBS, OCBC, and UOB offer this option with certain prerequisites such as business longevity and revenue levels.
SME Working Capital Loan
This specialized business loan is designed for local SMEs with a maximum of 200 employees. The Singapore government collaborates with banking institutions to provide up to $1 million per borrower, repayable within 1 to 5 years. To be eligible, companies should be Singapore-registered and at least 30% owned by Singaporeans/PRs.
Temporary Bridging Loan
A government-backed financial aid scheme developed to help businesses (not exclusively SMEs) weather the impact of the Covid-19 pandemic. This loan, available to Singapore-registered companies that are at least 30% locally-owned, offers up to $5 million, repayable within 5 years.
Startup Business Loan
Also known as a ‘first business loan,’ this is a downsized version of the standard business loan, with a cap of, for instance, up to $100,000. The startup business loan requires lesser prerequisites like a few months of operation and no need for strong financial history.
Potential Hurdles in Securing a Business Loan
Even with a wide variety of business loans on offer and government intervention to ensure wider availability, loan applications can still fail. Typically, you will be notified about this after two weeks of loan processing. The following areas could be potential stumbling blocks when attempting to secure a business loan:
Years of Operation
For newly established businesses, getting a business loan can be challenging. Loan providers usually require a business to have at least 6 months of operational history to qualify. Even if you are established, they may ask for your annual revenue evidence. If you’re a start-up, getting a business loan can be daunting.
Business Ownership
Government-assisted financing is exclusively available to businesses registered and operating in Singapore, with at least 30% ownership by Singaporeans/PRs. Insufficient Singaporean/PR ownership can make it harder to secure a loan.
Credit Score
If your credit score is low, your business loan could be rejected. A poor credit score raises concerns about your repayment capacity. Remember, your personal credit score does influence the outcome, even if it’s a business loan application.
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