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How to Get a SME Business Loan in Singapore
Supporting both the expansion and operations of a small business that’s growing fast often requires additional financial support. Acquiring a business loan in Singapore will help you bridge the gap whenever capital investments are needed, may it be to increase your workforce, move to a bigger commercial space, or add more branches.
As there are different ways for you to fund your business in Singapore, this article aims to help you make the right decision on which method to employ.
Check out your best financing options below.
Banks in Singapore provide different kinds of business financing options: funding and working capital loan.
The latter is, as its name suggests, a loan that’s taken to finance your company’s everyday operations. Working capital loans aren’t used in investments or purchasing long-term assets. Instead, they’re used in covering wages, accounts payable etc.
Funding, on the other hand, involves the sharing of your business plan as well as a valuation and project report. Every bank in SG offers financing for SMEs through several programs including UOB BizMoney and DBS BusinessTerm Loan.
P2P lending platforms allow the public to reach out to businesses that are in need of a financial boost. They’re like marketplaces as they bring together businesses and people who want to lend money to company owners.
Public investors may lend money to businesses, and then get returns or profits on interest rates when the borrowers or business owners repay the loans.
Businesses that opt for P2P lending can have the quickest and easiest financing even when they haven’t gotten approval from a standard financial intermediary.
In addition, the borrower or the business owner may get to enjoy a lower interest rate on a loan, but it will still depend on the current rates of the banks and P2P lenders. There are lots of P2P lenders in the country, but some of them may slap a bigger interest rate on a loan. What we would suggest is you contact us, so we can evaluate your situation and advise you on the best route to take for the financing of your growing business.
The SPRING Micro Loan is a readily available way for you to finance your startup quickly. In an instant, your business gets funding and the application process is straightforward. Best of all you can make early repayment and the interest is pro-rated.
It’s possible for you to get a bigger loan amount by doing a business term loan. More often than not, this option is overlooked, but it’s actually an effective way for you to raise money, especially the amount that your business may need.
Interest Rates on SME Loans in Singapore
It's been said that 9 out of 10 businesses fail in the first year. One of the most common reasons for a company to flop is due to being undercapitalized. One way to overcome this problem is by taking a loan. However, this also exposes the entrepreneur to abuses from loan sharks.
Thankfully, Singapore is a progressive country that embraces entrepreneurship and does everything it can to stimulate business growth. This is the reason why Singapore has strict rules that govern SME loans, or also known as small and medium enterprise loans.
In most cases, Singapore laws are set in place to prevent the practice of loan sharking. This way, upcoming businesses are protected from abuses and have increased chances of success.
Keep in mind that interest rates are typically moving. The figures below only constitute the rates at the time of writing this article.
Another thing to consider is where you’re getting your loan. As a rule of thumb, the interest rate on unsecured loans is generally higher when compared to secure loans. Also, the size of the bank matters. Bigger banks will often give you lower interest rates but may be more difficult to get approved.
- SME Micro Loan
- Unsecured Business Term Loan
- Trade Financing Line
- SME Working Capital Loan
- Factoring / Receivables Invoice financing
- Commercial/Industrial Property Loan
- Equipment/Machinery Loan
- Alternative Financing or P2P Crowdfunding
- 6.5% to 7.5% per annum
- 10% to 13%
- 6.75% to 8%
- 6.5% to 7.5%
- 10% to 13%
- 6% to 8%
- 1.3% to 2.5%
- 5% to 8%
- 1% to 5% per month
Keep in mind that the interest rate figures above are in EIR, or also known as Effective Interest Rate.
Calculating the interest rate of a loan can be tricky. In fact, most people get the numbers wrong most of the time. To make it simpler, we'll discuss the basics.
Some lenders will provide you with an interest rate when you take a loan. The next question to ask is if it's the nominal, real or effective interest rate.
The nominal interest rate is perhaps the simplest way to express. It's just the loan amount and the interest you need to pay. Real interest rate generally takes into account the inflation factor. The effective rate is what you should focus on because it has the most significant impact as it will factor in compounding.
Generally, the interest rate between nominal versus effective rate is very minimal if the period is shorter. However, on more extended periods, the effects of compounding will start to kick in and may surprise you.
Calculating the effects of effective interest rate can be very complicated. A simpler way to do it is to use a loan calculator. There are plenty of loan calculators you can use online that are free to use.
The subject of SME loans is a very choppy sea to navigate through. It’s best that you work with a professional to help you get the loan you want or need at the rate and terms that are beneficial for both parties. If you need a recommendation, LoanOwl.sg is there to help you. They have loan specialists that are experts in Singapore lending laws and are always updated to help you find the best rates.