Comparison of the types of SME Loan in Singapore 2023

The year 2020 was a critical time for Singapore businesses due to the sudden economic halt Covid-19 has caused, forcing businesses to adapt and digitize their services. 

The Government of Singapore understood the financial demands of hauling everything to online entrepreneurship and staying afloat during the transition period. They partnered with reputable financial institutions to float businesses and make sure they have enough to make the necessary changes.

Truthfully, despite Covid-19, the year 2020 was an excellent one for the wide variety of SME loan Singapore products available for any small business. 

Therefore, if you’re in Singapore and you need a small business loan, you have an excellent number of financial products — both Government assistance schemes and private ones from banks and financial institutions — to use. Below, we’ve written everything you need to know about the best business loans in Singapore.

What is SME Loan?

For any individual who plans to start their enterprise Singapore, a SME business loan is a useful and powerful springboard to meet their objectives. All start-ups and any established business use a business loan when time becomes much more valuable than profit or their budget 2020.

Unlike personal loans, a business loan provides more than 12 months of an employee’s income. It has higher fixed loan amounts than personal loans, which is enough to give any business the boost it needs to purchase initial supplies, equipment, and properties or business branches. Business loans take care of initial employee salaries for the first six months up to a year.

Generally, most small business loans have a lower interest rate than a “standard” business loan because of the limited loan amount available. The Singapore government’s initiative to make the country a global “start-up home” provides government-assisted small business term loans, which are affordable and manageable.

Truthfully, any starting business needs a loan amount if they’re pressed for time. While Kickstarter and crowd-funded brands thrive with their niche markets, local SMEs focused on general markets will find SME business loans much more appealing if they need to establish their brand quickly.

The Different Types of Business Loan Available in Singapore

The Singapore government, banks, and financial institutions offer Singaporeans many financial products and services for businesses. Alternatively, money lenders that the Ministry of Law licenses provide business loans for less credit score dependence than banks. However, they only have a website loan assessment tool or on-site personnel to help borrowers.

Once you’ve registered your company, you can begin finding the perfect business loan with a suitable repayment period and fitting loan amount to start your business. Here are the different types available in Singapore.

• Government-Assisted Financial Products

As its name implies, the Singapore government subsidizes payments and collateral to help businesses receive sufficiently-financing SME business loans. Truthfully, virtually all SMEs use a government-backed business term loan because of its convenience and friendly interest rates. 

Furthermore, its repayment period is manageable thanks to government subsidies.

Any Singapore company that requires sufficient immediate funding with minimal loan application requirements will find government assistance funding their best option when bank loans aren’t available to them. Below, we’ll go into details with two government-assistance financial products.

• Temporary Bridging Loan

SMEs can use a temporary bridging loan from the government in special situations. For example, in 2020, temporary bridging loan options became available to companies because of the sudden economic halt forcing major industries to reduce their activity or ultimately close down. The huge profit setback has forced many small and medium enterprises — Singapore’s backbone economy — to declare bankruptcy.

To keep them afloat, the Singapore government offered its subsidized financing scheme. This business term loan provides an immediate loan capping at S $5million and a repayment period of up to 5 years for small and medium enterprises that are Singaporean-owned by at least 30% of shareholders experiencing difficulties. Having introduced this scheme helped Singapore improve its economy during the unprecedented stoppage, which slowing loan demands demonstrate.

• SME Working Capital Loan

The Singapore government recognizes this fact: some Singapore SMEs can close down because the temporary bridging loan programme and alternative bank loan requirements are too high and unmanageable for them. To make sure the SMEs economic sector does not suddenly collapse, they made available a smaller loan amount with better and easier-to-manage terms and interest rate than the other option.

The SME Working Capital Loan looks like a startup business loan because it can supply new and existing business owners a S $1million cap with flexible repayment periods of 1-5 years. However, existing establishments can use business financing for infrastructure redevelopment, which is exceptionally useful when the economy demanded digitization during the year 2020.

Once again, the SME Working Capital Loan requires businesses to have at least 30% Singaporean owners to receive the advantageous term loan. In most cases, this financing’s interest rate is friendlier than temporary bridge loans.

• Private-Sector Banking

Singapore’s banks have been providing credit cards and personal loans to their citizens for decades. Additionally, they’re always looking for worthy businesses to receive a fiscal boost through their business loan products. 

During the pandemic economic halt of 2020, they’ve worked with Singapore’s government to drive down interest rates on specialized government-backed financial products.

Singaporean banks are always an expanding business’ best friend. If you have a viable idea that generates income and creates lasting value, bank business financing departments are ready to lend their ears. In turn, they can provide you with the best options available using the business owners’ credit score and report, business plan feasibility, and accounting figures.

Truthfully, most business loans have strict guidelines. Plus, they can only finance companies that have 20-30% Singaporean owners at minimum. Additionally, they can give you smaller ceiling rates than the higher-loan amount government-backed small to medium company financing. 

Here are the two most common bank business loan products you can use.

• The ‘Standard’ Business Loan

Suppose you’re thinking about the standard bank manager presentations, credit score reviews, weeks or months of waiting for collateral investigations, and eventual loan approval. In that case, it’s the “standard” business loan you’re thinking about. 

Banks will process your loan application, then provide you a date and time to meet the manager. You’ll need to present accounting proof and your loan’s purpose in the most detailed way possible. Truthfully, establishing the income, cash flow, and return-of-investment date are crucial to “winning” your loan application. 

Banks want to see how SME business startups can produce profit and sustain their loan repayments in a clear-cut manner.

Once you accomplish this, you’ll receive a loan application approval notification, allowing you to sign and finalize your business loan contract with your chosen bank. In most cases, you can receive financing beyond S $1 million, which you’ll have 2 years to 3 years to pay back.

Aside from banks, you can use licensed moneylenders, such as 1 Fullerton Credit, to provide you with reliable standard business loans reaching up to S $200,000 at maximum. Working with licensed moneylenders is much easier and faster than banks, too.

• Startup Business Loan

Applying for startup financing is similar to regular business loan products. Truthfully, the purpose and amount are the major differences between the two. 

Startup ideas are often innovative, but banks concern themselves mostly with long-term sustainability, return-of-investment, and initial instability. Plus, most startup company owners stake their respective credit scores, rather than accounting data, to banks for their reference.

Truthfully, you can get up to S $500,000 at maximum for a startup loan, which banks may require you to pay from 6 months to 3-5 years. Like standard bank loans, you’ll need to wait for weeks or months until banks can process your application, and you can claim your startup amount through a deposit.

Alternatives to ‘Traditional’ Government Schemes and Bank Products

Singaporeans have numerous alternatives to both government-assisted business financing and banking products for businesses. In some cases, both starting and established businesses can fall short of eligibility and requirements they can find in most of the best SME loans available. However, all isn’t lost because they can receive financing through alternative means, such as the following.

• Invoice Factoring

You can think of invoice factoring is similar to trade financing or accounts receivable services. You can ask banks or a legitimate financial institution, such as licensed moneylenders, to purchase all your to-be-paid invoices for 90% of their total value. 

Therefore, the receivables buyer will purchase it for 10% less, and you’ll receive cash immediately. Be mindful that some invoice factoring institutions may ask for a small service fee equivalent to a fixed amount or percentage — always read your terms and conditions.

Additionally, invoice factoring might have some indirect negating effects, such as the invoice-buying institution representing you before your trusted suppliers. Altercations, due to their different collection style, can have the potential to damage your business-supplier relationship.

• Credit Lines

These function similarly to credit cards. Credit lines are mostly revolving credit, which has strict candidate guidelines. If you’ve been a repeat bank borrower with numerous closed accounts plus an excellent credit record, you can use credit lines to establish the first 6 months of your business through credit lines. You only need your personal record without any reference to your business ventures.

However, credit lines are expensive if you consider their high interest rate for all installment ventures. You will end up paying more than the principal and interest of a standard business loan if you compare it with your final revolving credit repayments.

• Personal Installment Loans

Truthfully, some banks and licensed moneylenders can provide you personal loans on installment. These can extend higher than the usual six months monthly salary cap on regular personal loans. However, because they’re not bank loans, you might not see desirable loan tenors of 3-5 years to pay. At most, you might only have a 6 to 12 months maximum payment period for them.

However, these are useful for most established businesses. They don’t need the business’ credentials because of the financing’s personal nature. Plus, they offer a stable interest rate of 4% with a sum that businesses can pay within the usual loan tenors.

Comparison of SME loans in Singapore 2023

Finding The Right Business Financing Is Always Easy In Singapore

In Singapore, the government and financial institutions work together to help you find the perfect financing that can boost your business’ productivity, even during the country’s most difficult times. 

Truthfully, a loan is the handiest tool you can have if you need to transform your business from physical to digital. As long as you have a definite plan for this transition, the government and virtually every Singaporean bank and lender will always be at your service.

If you would like to have a business loan with low-interest rate and fast approval, please call 1 Fullerton Credit for a free consultation.