Are you considering sourcing for a business loan for your new business in Singapore? Many businesses view the city as their ideal business location in Asia due to its excellent geographical location and well established trade links. However, due to rising business costs and delayed payment from customers, businesses often requires a significant amount of capital to bridge the financial gap.
Building a successful business requires a significant amount of capital and meticulous planning. Even if your company has been around for a while, you could be thinking about sourcing for working capital loans to expand and grow.
In this article, we will explore the several business loans available in Singapore and our best tips to help new businesses to secure their startup business loan.
Why do Companies Need Business Loans?
A business loan is a type of financing to meet a company's business operating costs such as acquiring materials and inventory, paying suppliers, buying and leasing equipment and vehicles, or renting office space and warehouse space.
Working Capital
Most businesses fail due to running out of cash. Therefore, maintaining a healthy cashflow is critical. A startup business loan can help startups to improve cashflow.
Business Growth
After setting up the company, businesses may need a startup business loan to scale up their operations. They may need to hire more employees, spend on marketing and sales in order to take on additional business opportunities.
Unexpected Business Expenses
During the course of business operations, there may be unexpected business expenses that may arise. Having access to standby working capital can help the business to meet these expenses without compromising business growth.
Types of Startup Business Loans in Singapore
There are many different types of startup business loans available to startups in Singapore. Below are some of the more common types of business loans utilized by business owners to boost working capital and improve cash flow.
Bank Loans
Banks are a major source that offers business loans to SMEs. The interest rates and repayment terms offered by banks are generally competitive and affordable. However, most banks require borrowers to have 2 to 3 years of track record and to show sufficient profits to repay the business loan. In addition, banks also require guarantors to show good personal credit repayment history.
Banks are less likely to lend to new startups with a history of low revenue and erratic cash flow as these companies are seen as high-risk by banks. However, with the arrival of digital banks in Singapore SME business loans scene, getting a SME business loan for your startup may be easier than before.
Alternative Financiers
After setting up the company, businesses may need a startup business loan to scale up their operations. They may need to hire more employees, spend on marketing and sales in order to take on additional business opportunities.
They often have more flexible lending criteria and faster approval processes than traditional banks. However, the downside is that these lenders may charge higher interest rates due to the higher risks that they take on.
Invoice Financing
Invoice finance refers to various invoice-based lending strategies, such as invoice factoring, invoice discounting, and receivables finance. Startups can pledge their invoices to release immediate cash to use for business operations.
Lenders will usually advance 80% of the invoice value up front and businesses can receive funds in 48 hours. After the startup receives their payment from their customers, the lender gets repaid and the loan has ended. This is especially useful for startups who sell to more established corporations on credit terms.
Government Grants and Schemes
The Singapore government offers various financial assistance schemes that could help startups and SMEs to scale up their business.
- Enterprise Singapore (ESG) - Offers the Enterprise Financing Scheme (EFS) to help SME businesses access financing to meet business needs such as project financing, M&A, venture debt financing, and trade financing.
- Startup SG Founder - Provides mentorship support and a startup capital grant of $50,000 for aspiring entrepreneurs with innovative ideas.
- Startup SG Tech - Provides funding support to startups to commercialize proprietary technology.
Equity Investment
Equity investment is another source of funding that startups can tap. They include angel investors, venture capital. Investors would receive a predetermined share of the company's equity in return for financing.
However, it is notoriously difficult to receive an equity investment. Startups need to have a unique selling proposition and differentiate themselves from the competition. It usually takes more than 6 months for investors to conduct their due diligence.
Tips to improve your chances of securing a Startup Business Loan in Singapore
Check Your Eligibility
Most business loans require the business to be registered and operating in Singapore with at least 30% local shareholding. Make sure your business meets these basic requirements before applying.
Maintain Good Personal Credit Score
Your personal Credit Bureau Score matters. Lenders will check the credit history of directors and guarantors. Maintain good credit habits to improve your chances of loan approval.
Open a Corporate Bank Account
Having a dedicated corporate bank account helps separate personal and business finances. It also demonstrates professionalism and makes it easier for lenders to assess your business cash flow.
Keep Proper Financial Records
Keep a proper record of documents such as:
- ACRA business profile
- Last 6 months bank statements
- Last 2 years notice of assessment for all directors and guarantors
Speak to a Trusted SME Business Loan Consultant
Consider consulting with a professional business loan consultant like B.Smart to help you navigate the loan application process.
An experienced SME business loan consultant should be able to guide you through the entire loan application process, from application to disbursement. They should also know how to spot and mitigate any potential issues that may affect the business loan approvals.