Your business will need a financial boost from time to time, but taking a loan and being in debt demands an intelligent approach. This is because without a concrete plan, many people end up in revolving loan cycles that bring their businesses down.
Nevertheless, small and medium-sized enterprises (SMEs) can benefit from short-term loans and become large businesses. You, too, can bring your business to achieve this success – if you learn how to find the best short term business loan.
In this article, we let you know how to determine the best business loans for SMEs by telling you what to consider, the types of SME loans available to you, where to get the loan, and how to use the loan profitably.
What To Consider
With so much at stake, business owners must take their time before signing up for a loan. Some of the critical factors to consider when it comes to how to find the best short term business loan are:
Reason For Taking The Loan
Think about why you are taking the loan and consider if there is another way around it because for you to proceed to take on such a commitment, your reason must be compelling enough.
What will it cost to bring to fruition the changes you want in the business? The amount it would take will determine how big of a loan you need.
How long would it take you to pay the specific amount above? Think about the amount of time it would take you to repay the loan in full – know that the longer it takes, the higher the borrowing costs.
But remember that if you strain your business too much to pay very high monthly installments, you might run into cashflow problems that could undo what you have been working on.
Some lenders will offer you unsecured business loans for SMEs, depending on your repayment capacity, while others will ask for collateral.
Collateral makes it easier for the lender to grant your loan because it’s an assurance that it can recover its money in the worst-case scenario when you’re unable to pay the loan.
Prevailing Interest Rates
Conduct a survey of interest rates that different lenders such as banks and licensed money lenders charge and choose the most favourable.
Be on the lookout also for hidden charges lenders have such as loan processing fees, appraisal fees, and administration fees that could push the cost of the loan upwards even when the interest rate is low.
The size of your company is determined by its market share, which by extension, determines your ability to pay the loan. Choose a loan amount your company can pay based on its revenue.
Types Of SME Loans
Small business loans, called SME loans, vary depending on the financial need of the small or medium-sized business’s needs.
The types of SME loans available to businesses in Singapore are:
This is the typically unsecured standard loan for businesses. Examples of major banks offering business loans in Singapore are OCBC Bank, DBS Bank, and United Overseas Bank. This loan has a five-year term and an interest rate falling between 3.5-6.75%.
Startup Business Loan
The startup business loan, or the first business loan, is a miniature version of the business loan with a cap of $100,000. It’s easier to get because a business only needs to have been in operation for a few months, and does not need a solid financial history.
SME Working Capital Loan
Designed specifically for SMEs having a maximum of 200 employees, this is a government-backed loan that offers up to $1 million to each business, to be repaid in a period of up to five years. But Singaporeans or permanent residents must own 30% of the SME.
SMEs apply for this short-term loan using their customer invoices as a backup. They can get up to 90% of the value of unpaid invoices in cash instantly, and they only need to pay interest on the amount they use.
Machinery And Equipment Loan
This loan supports the purchase of new or used assets to upgrade existing hardware or automate processes.
What They Can Be Used For
Here are some valuable ways to ensure that you use the money productively:
Purchase of Inventory
If your business would use an increase in inventory, such as when anticipating high demand, a business loan would help you meet this inventory need. You can also use the money to take advantage of a discounted price of products whose prices are bound to go up, then repay the loan when you make the sales.
Cover Startup Costs
It is easy to qualify for startup loans in Singapore and get quick approval for a short-term business loan without collateral. You can apply for the loan and use it to finance your startup business.
To Start A New Project
Often, a new project will result in some expected and unexpected upfront costs. If you don’t have the cash to fund the project, you can borrow a short-term loan and repay it in a few months.
A short-term loan should help your business navigate an emergency.
Short-term loans are a great source of temporary cashflow because they mature quickly.
Comparing SME Loans
Are you wondering how to find the best short term business loan?
After deciding that your business needs an SME loan, the next step is to compare different loan offers from money lenders across the island. Compare their loan terms, interest rates, and fees.
Choose the loan with the lowest cost, meaning it has the lowest interest rates, a favourable term, and low fees.
Where To Get An SME Loan
You can get an SME loan from several lenders in Singapore, but we have picked out the best* for you.
1. U Credit
U Credit has established itself and gained a reputation for its professionalism and willingness to support businesses.
As a licensed money lender, we pride ourselves in offering some of the most attractive interest rates and easy lending terms. Our loan application process is easy, and the loans are processed fast, availing the cash you need at the right time.
As long as your business has operated for at least two years, U Credit will tailor a loan for you and give you a favourable loan tenure.
2. OCBC Bank
OCBC has won several awards and accolades for its facilitation of SME loans. It offers financing of up to $200,000 to be repaid in six to 12 months.
But to apply for an OCBC SME loan, your company must have been locally incorporated for a minimum of two years and have a 30% local shareholding. You will also need guarantors.
3. DBS Bank
DBS is one of the best traditional bank lenders, with a competitive 7-11% interest rate, for loans of up to $500,000, with a tenure of up to five years. But this line of credit is suited to companies that have steadied their sales.
The Singapore government has committed $2 million to be issued as loans to SMEs and availed it to the customers through its partnership with various financial institutions.
The requirements for eligibility are that the company must have a 30% local ownership, and its annual sales must be $100 million or less. Also, the employee number must not go beyond 200 persons.
If you meet these criteria, here are the government-backed business loans for which you could apply:
- SME Working Capital Loan: Businesses can get up to $300,000 without collateral, to be paid in five years.
- SME Micro Loans: Companies with 10 or fewer employees and less than $1 million in annual sales can get up to $100,000. To encourage entrepreneurs, this loan is given even to companies that are less than three years old.
- SME Fixed Assets Loans: Your SME can borrow up to $30 million to be used to purchase machines and equipment. You could also use it to expand through construction, buying a new facility or premise, or other capital-intensive activities that will add to your company’s growth.
- SME Venture Loans: This is designed for innovative businesses to help them expand. The maximum amount you can borrow is $5 million.
Loan For Short Term
Basically, SME loans are short-term business loans. They are processed quickly, have a short repayment term, and their interest rates are higher than those of long-term loans.
Ideally, you want to get the loan and pay it back in 18 months. Some of them demand daily payments, while others require weekly or monthly payments.
So before applying, ensure you can keep up with these requirements.
Learn How To Find The Best Short Term Business Loan
When it comes to how to find the best short term business loan, the choices are many but the key thing is to know what you need and how much you can afford to borrow.
Apply for a business loan from U Credit now – not only because we have an extensive loan capital portfolio to offer, but also because of our professional yet friendly approach to our customers.
Our finance experts will listen and work with you to customise a business loan and repayment schedule suited to your business and its growth stage.