Singapore is a preferred destination for not just local businesses but foreign companies as well. This shows the reliability of the financial institutions in developing the business economy of Singapore.
Singapore’s banks and non-banking financial institutions (NBFCs) offer businesses attractive interest rates and loan options.
Whether you need an SME loan, a small business loan, or a start-up business loan, you can quickly access a business loan in Singapore if you provide substantial documents and meet the eligibility criteria.
Find out what is business term loan and how you can apply for one in Singapore.
Business Loan Options In Singapore
There are various business loan options available for business owners in Singapore, depending on the type of business you own, the size of your business, and the purpose of the business loan.
Standard Business Loan
It is a suitable loan choice for businesses which require operating capital for day-to-day activities. There is no collateral requirement for a standard business loan in Singapore.
This type of business loan is common for small and medium-sized enterprises (SMEs) because of their flexible loan terms and loan repayment term of up to five years.
Banks lend standard business loans to companies operational for at least two years in Singapore. Almost every major bank, including DBS Bank and United Overseas Bank, offers standard business loans.
You can use this loan for:
- Inventory purchase
- Employee payroll
- Business expansion
- Rental fee for the office space
SME Working Capital Loan
The government of Singapore launched an SME Working Capital Loan to help the local SMEs affected by the Covid pandemic.
Enterprise Singapore, in collaboration with participating financial institutions like DBS Bank, United Overseas Bank, and Standard Chartered Bank, offers affordable loans of up to $1 million for five years.
SMEs with a minimum of 200 employees can approach banks for a working capital loan. These loans come with a government risk share of up to 90%. Hence, they are easy to apply for without collateral.
Such loans are available for young start-ups with a minimum of 10 employees or annual sales not more than $1 million.
Start-up owners are eligible for a loan of up to $100,000 for four years. If your start-up has been operational for six months in Singapore and is 30% locally owned, you can get a start-up loan without collateral or a solid financial history.
Furthermore, start-ups with venture debt financing can approach banks for loans up to 30% of their total venture funding in the last round.
Financial institutions which use invoices as collateral offer invoice financing loans to small business loans in Singapore.
SMEs usually issue invoices to their customers for the services they offer. While awaiting payment, businesses can use the invoices as collateral and receive loans from the bank in exchange.
Once the bank approves your invoice financing loan, business owners can draw up to 80% of the invoice value as a loan.
The bank receives the invoice payment directly from the SME customer and refunds the remaining 20% after deducting the interest rate and other charges.
Business Loans Vs Personal Loans
A business loan specifically caters to the cash needs of a business, while a personal loan is for your individual needs like weddings, treatment, upskilling or buying a home.
Some may take personal loans for their business needs when banks reject their loan applications.
These loans are available for a business that is 30% locally owned and operating in Singapore for at least six months.
- Business loans are unsecured and secured, depending on the type of loan and company.
- Major banks, NBFCs, and licensed money lenders like Credit 21 offer business loans.
- Businesses have to furnish their financial records and declare how they intend to use the loan for loan approval.
- These loans can be short-term and long-term, with a loan tenure of up to 15 years.
- The interest paid on business loans is tax-deductible.
Singaporeans, permanent residents (PRs), and foreigners living in Singapore above the age of 21 are eligible for personal loans. The loan amount depends on your credit history, salary and lending institution.
- Licensed money lenders are a popular choice for unsecured personal loans in Singapore. However, you can approach banks if you have collateral or need a personal loan of a large amount.
- You need to show your credit history and current salary documents to avail of a personal loan.
- These loans are usually short-term, with a maximum loan tenure of up to five years.
- No tax benefits are available on personal loans, and interest rates are higher if you borrow from a bank.
- The application process and loan disbursement for personal loans are faster when compared to business loans, sometimes within 24 hours, based on the loan amount and your debt-to-income ratio.
Eligibility Criteria For Business Loans In Singapore
The eligibility criteria for a business loan vary for different business loan options and lending institutions.
Bank Eligibility Rules
A business must meet the following requirements to access a business loan in Singapore from banks:
- A business entity must be 30% locally owned and physically operational in Singapore for at least six months.
- The borrower or the business owner should maintain a good credit record, disclose their income, and provide a 100% guarantee for the loan.
- Businesses must show accurate documentation regarding the business model, financial records, previous debts, revenue, year-on-year growth, and projected revenue in case of a new start-up.
- At least one guarantor must be a Singaporean citizen or PR and have an annual income of $30,000.
- The previous debt obligation of a company must be less than its current revenue proceeds and not obstruct its ability to repay the current loan amount.
Eligibility Rules For Licensed Money Lenders
Businesses looking for short-term unsecured loans to finance their current cash obligations or expand their business can get hassle-free, flexible loans with licensed money lenders like Credit 21.
- You need to provide the financial records and documents for your current debt obligations for them to determine your borrowing capacity.
- You must be above 21 and provide your personal income details, NRIC, and CPF details.
- Businesses must be Singapore-based or at least operate in Singapore for six months.
With Credit 21 business loans, you can access loans up to two million dollars at low-interest rates, flexible loan tenure and fast cash disbursement.
How To Apply For A Business Loan
Most banks and financial institutions allow businesses to apply for a loan online through their websites.
Once the bank approves your online application, a bank representative might call you. Sometimes, you may have to visit the bank and submit business documents to proceed with your loan application.
Borrowers should remember that the whole loan process does not take place online and they must visit the lending office for loan approval. Generally, it can take a week or month for banks to approve business loans.
However, licensed money lenders approve loans as fast as 24 hours if you are ready with all your documents. But it is mandatory to meet the licensed money lender at its office in person for identity verification.
Fees And Terms For Business Loans
Financial institutions impose business loan fees to ensure their customers repay the loan on time.
You should look out for the following fees and loan terms when taking a business loan in Singapore:
Banks charge up to 1-3% of the approved loan as processing fees, and money lenders impose a loan processing charge of up to 10% of the loan amount.
Early Repayment Penalty Fee
Most banks charge an early repayment fee of up to 2-5% of the principal amount repaid early. Banks charge a penalty fee to recover the interest amount that they could have earned on your loan repayment tenure.
Late Interest Rate Charges
Banks can levy a late loan repayment fee of up to 2-5% of the amount repaid late.
These charges include underwriting fees, loan maintenance charges and other costs that banks might levy as part of the loan approval process.
Why Your Business Loan Application May Be Rejected
A bank or NBFC can reject a business loan application because of the following reasons:
- You own a newly established company that has not been operational for six months.
- The company directors or business owners have a bad credit history and carry corporate transactions from a personal account.
- Your business is unstable, does not have proper financial records, or too many debt obligations.
- Banks do not like lending to a company or business owner with pending litigation in a court.
- Some banks blacklist or restrict certain companies and industries from taking loans because of high-risk factors or government orders (e.g. a jewellery business).
Contact your lender to know why your loan application was rejected because it is possible to get approval after fulfilling the loan terms.
About 65% of the Singapore economy thrives on small businesses. A business loan can help you expand your business and accelerate growth now that you know what is business term loan.
With new opportunities and a flourishing business ecosystem in Singapore, a business loan can benefit you in the long term.
If you have a bad credit history or a bank has rejected your loan application, try Credit 21, a trusted licensed money lender in Singapore with flexible terms and low interest rates.