Running a business is never an easy feat. You’ll often find yourself needing funds to tide over tough times or expand your business.
This is where business term loans come in handy.
If you’re looking for a business loan in Singapore, there are a few things you need to know.
How much can you borrow? What’s the interest rate? What’s the application process like? Also, what is business term loan?
In this article, we’ll walk you through everything you need to know about getting a business loan in Singapore.
So whether you’re just starting out or looking for some extra cash to grow your business, read on for tips and advice on getting started.
What Is A Business Term Loan?
First, understand that the term “business loan” is a general term for loans granted to businesses.
Singapore has plenty of business loan options for small and large-scale businesses. Let’s look at some of these options.
Unsecured Business Loans
These are the most common business loans and are popular among small businesses because of their flexibility.
As the name suggests, unsecured business loans do not require collateral. That means you don’t have to use your home or business as security against the loan.
However, you may have to pass a strict evaluation first. For example, some banks and lenders require your business to be at least two or three years old.
Others might need your business to hit a certain annual revenue to be eligible for it.
Government-Assisted Business Loans
These are government-assisted funding options meant to help small and medium-sized enterprises (SMEs) with their financial needs.
The two most popular ones are:
SME Working Capital Loan
Launched in Jun 2016, this loan was meant to help SMEs cover their operational and capital expenses. It has a five-year repayment period and a $1 million cap on the total amount.
However, the loan is only available to Singapore-registered SMEs with 30% ownership rights resting with Singaporeans or permanent residents (PRs).
Temporary Bridging Loan
The Temporary Bridging Loan Programme was introduced in 2020 to help businesses cope with problems caused by Covid-19.
It offers short-term loans of up to $3 million with a five-year repayment period and the interest rate is capped at 5% per annum.
Like SME Working Capital Loan, your business needs to be physically present in Singapore and have a 30% ownership stake held by Singaporeans or PRs.
Startup Business Loan
Also known as a Business First Loan and Micro Loan Programme (MLP), a start-up business loan offers companies financing up to $100,000.
This loan amount can be used to take care of daily operations and cashflow problems.
It has a repayment period of four years and doesn’t have strict eligibility requirements like an SME loan.
So these are some of the many business loan options in Singapore. Now let’s look at how business loans differ from personal loans.
Business Loans Vs Personal Loans
Here are a few notable differences between business and personal loans:
Business loans can get you up to $20 million, while personal loans will get you a maximum of six times your monthly salary.
You get a maximum of five years to repay a business loan, but personal loans can have a repayment period of seven years.
Business loans can be used for business-related purposes such as working capital, business expansion, equipment purchases, etc.
On the other hand, personal loans are meant to be used for personal expenses such as weddings, education, and medical emergencies.
Business loans require a business to be six months to two years old to be approved.
Plus, you need to submit Accounting and Corporate Regulatory Authority (ACRA) records, financial reports, and other similar documents.
Personal loans have no such requirement except for your age. Moreover, you need fewer documents to apply for a personal loan.
Business loans may take two weeks or longer to get approved.
Personal loans can get approved within days. Some licensed money lenders even offer cash or credit as a personal loan within 24 hours.
Now that you understand the types of business loans available and how they differ from personal loans, let’s see the eligibility criteria for a business loan.
Banks and licensed money lenders have almost similar eligibility criteria for business loans. However, banks tend to be stricter regarding credit scores, sales, and the age of the business.
Registration/premises: Most banks demand that your business be registered and based in Singapore. This means you need a physical office or space to operate out of.
Licensed money lenders may not require Singapore business registration. However, your business must be operational in Singapore.
Ownership: Banks require 30% of the business to be owned by Singaporean citizens or PRs. Licensed money lenders, on the other hand, can help you get a loan even if you are a foreigner doing business in Singapore.
Sales/income: Sales or income requirements vary from one bank to another. Some banks would require your business to have annual revenue of $300,000, while others may need a minimum annual income of $20,000 or $30,000.
Licensed money lenders have less stringent sales or income requirements.
Company size: Like sales and income, each bank has its own criteria for number of employees. Some banks require businesses to have less than 200 people. On the other hand, some would not have any employee criterion.
Licensed money lenders will grant you a loan even if you are working as a solopreneur.
Business age: Banks would need your business to be at least two years old to be eligible for a business loan, while licensed money lenders only require your business to have been operational for six months.
Credit score: Banks require a positive credit score and might even reject your loan application if you have a poor credit history.
Licensed money lenders focus more on your ability to repay the loan. You may get a business loan from a lender even with a poor credit score.
How To Apply
The application process for a business loan is similar to that of a personal loan. You can apply for a business loan online, over the phone, or by visiting your lender’s office.
The documents to be submitted will vary depending on the type of loan and your lender. However, you would generally need the following:
- NRIC or other identification details of all partners/shareholders
- ACRA report highlighting your business information, directors and shareholders, and your company’s paid-up capital
- Your business’s latest two years’ financial statements
- Your business’s latest six months’ bank statements
- Any additional documents required by your lender
After you’ve submitted all the required documents, the lender will assess your loan application. You’ll get the loan amount within a few days if your application is approved.
Fees And Terms
Fees and terms for Singapore business loans vary depending on the type of loan and your lender. However, there are some general points to remember:
- The interest rate on a business loan is usually higher than that of a personal loan. The interest rate ranges from 2-9%, depending on your lender and type of business loan.
- You may have to pay a processing fee when you apply for a business loan. While some banks have a 0% processing fee, some lenders might charge a one-time 10% administrative fee.
- The repayment period for a business loan is shorter than that of a personal loan. The usual repayment period is up to five years.
Why Your Business Loan Application May Be Rejected
There are several reasons why your business loan application may be rejected. The most common ones include:
- Profitability: Lenders are primarily concerned with the profitability of your business. If your business is not generating enough revenue, the lender may view it as a high-risk investment and reject your loan application.
- Poor credit score: A bad credit score will reflect poorly on your business and increase the risk of loan default. As a result, lenders may be hesitant to approve your loan application.
- Business age: New businesses are usually viewed as high-risk investments because of their high failure rate. As a result, most lenders require businesses to be at least two years old before they consider approving a loan.
- Ownership: If less than 30% of your business is owned by Singaporean citizens or PRs, your application is likely to be rejected. This is especially true for government and bank loans.
A Business Term Loan Can Save Your Company
Now that you know what is business term loan, remember that licensed money lenders have lenient eligibility criteria as compared to banks.
While banks may reject your business loan applications for minor reasons, money lenders try to work with you to structure a loan that best suits your business needs.
Do you need a quick loan for a business expense?
Loan officers at licensed money lender U Credit can help you get a business loan, regardless of your company’s size or age.