The COVID-19 outbreak brought with it a series of Circuit Breaker measures in the hopes to slow down the spread of the pandemic. However, these measures also caused revenue streams of small and medium businesses to dry up. That said, survival has become the primary concern for many SMEs.
Many small and medium enterprises are facing difficulties in paying rent, suppliers, staff, and are struggling to keep afloat amid the economic fallout. Some SME owners have started diversifying their products to find other revenue streams. Others have taken other jobs to bridge the gap during these trying times.
Thankfully, a business loan or grant can help. With the help of Enterprise Singapore, the government offers special assistance loan packages to help SMEs get the funds they need to continue operating. Aside from these, local banks and financial institutions also offer a wide range of loan products.
SME owners can apply for a business loan to get the finances they need. There are different types of loans. Some financing products are offered for whatever a business needs, such as managing cash flow or paying the rent. Other financial products are offered for specific needs, such as a property loan or machinery/equipment.
Here are some of the most common business loan types:
This is an unsecured business loan which means there is no collateral required, such as property or equipment. This type of loan is popular among SMEs due to its flexibility. You can use this to finance your daily operational needs like:
- Inventory purchases
- Rental fee
- To finance business expansion plans
Additionally, for traditional SME loans, you can choose a repayment term of up to 5 years. You can apply for this type of loan from all major banks, such as DBS, OCBC, and UOB.
When the pandemic hit, the Singapore Government initiated government-assisted business loans for helping SMEs in the country. Led by Enterprise Singapore and participating financial institutions (FI), they offer affordable loans which are attractive to SMEs. These types of loans include a government risk-share of up to 90%.
Small and medium enterprise working capital loan is one of those government-assisted business loans that are offered to local SMEs with a maximum of 200 employees. The Singapore government works with banks to offer loans of up to $1 million per borrower. The loan tenure is within 1 to 5 years.
- Businesses registered and physically present in Singapore.
- At least 30% owned locally
This is another government-assisted business loan to help businesses bridge the gap during these challenging times. This type of loan is not only offered to SMEs. It is open to any Singapore-registered companies that are at least 30% locally owned. Businesses can borrow up to $5 million and the repayment period is up to 5 years.
Sometimes called a “first business loan”, this is an unsecured loan that caters to young start-ups. Think of it like a mini version of a standard business loan. It offers a lower loan amount of up to $100,000, making it much easier for startup businesses to qualify for. Additionally, with a startup business loan, SMEs only need to be in operation for a few months and don’t need a strong financial history.
The Singapore government has set aside a budget of $2 billion for SME loans. These loans are offered by participating financial institutions with the government accepting a 90% risk-share. The government has set the eligibility requirements while the bank sets the interest rates.
|Name of Loan||Maximum Loan||Loan Tenure||Interest and fees||Eligibility|
|SME Working Capital||S$300,000||Up to 5 years||Per bank or FI assessment|| |
|Temporary Bridging Loan||S$5 million||Up to 5 years||Up to 5% per annum|| |
|SME Equipment and Factory Loans||$15 million||Equipment loans up to 8 years |
Factory loans up to 10 years
|Per bank or FI assessment|| |
|SME Venture Loans||$8 million||Up to 5 years||Per bank or FI assessment|| |
|Name of Loan||Maximum Loan||Loan Tenure||Interest and fees||Eligibility|
|OCBC Business First Loan||S$100,000||Up to 4 years||Per bank assessment|| |
|OCBC SME Working Capital Loan||S$300,000||Up to 5 years||Per bank assessment|| |
|UOB SME Working Capital Loan||S$300,000||Up to 5 years||Per bank assessment|| |
|DBS SME Working Capital Loan||S$300,000||Up to 5 years||Per bank assessment|| |
|StanChart Business Installment Loan||S$300,000||Up to 3 years||Up to 11% per annum |
Default fee: S$100
|UOB BizMoney Loan||S$350,000||Up to 5 years||10.88% per annum |
2% facility rate
S$500 annual fee
|Maybank Business Term Loan||S$500,000||Up to 5 years||Per bank assessment|| |
There are different types of loans available to SMEs in Singapore. The government also initiated government-assisted loans to ensure that businesses will get the funds they need. But your business loan application may still be unsuccessful.
If your business loan application gets rejected or you don’t qualify for an SME business loan, you may consider other alternatives. For one, you can turn to licensed moneylenders for financial assistance.
Licensed moneylenders in Singapore are approved by the Ministry of Law. They are allowed to provide loans to Singaporeans, Permanent Residents, and foreigners with a valid Employment Pass. You can check the credibility of a moneylender by checking the list of licensed moneylenders on the Ministry of Law’s website.
|Name of Loan||Maximum Loan Amount||Interest and fees||Eligibility|
|SME Business Loans||Up to $200,000||Per moneylender assessment but it ranges between 5% to 15%.|| |
|Personal Loans||Up to 6 times your monthly income||The maximum interest rate that licensed moneylenders can charge is 4% per month.|| |
You can use SME business loans for the operational needs of your company. You can use it for:
- Emergency expenses
- Renovating your business premises
- Paying your suppliers
- Or help with the cash flow
On the other hand, you can get a personal loan instead if you don’t qualify for the SME business loan. With a personal loan, you can use the money for anything you need. However, the maximum loan amount for an unsecured loan is up to six times your monthly income.
Equity business financing involves raising funds through selling shares of your business to investors. For instance, SMEs can consider selling shares of equity if they don’t have sufficient operating cash. This allows SMEs to meet their business financing needs. It’s an exchange of ownership interest for capital.
This is a good option for those who don’t qualify for SME loans from banks or if the interest payments of a loan are so expensive.
FundedHere is one of the three most popular crowdfunding platforms in Singapore. It focuses on start-up companies and allows them to raise as much as $1 million in just 35 days. For this reason, it’s a good choice for businesses less than a year old. You’ll only have to pay a 6% platform fee and a 2% fee on the total equity raised. Best of all, if you raise more than your target, you can keep the funds.
This platform has two types of business financing:
- Equity Financing: Early-stage startup companies sell their equity for financing
- Debt Financing: FundedHere’s ListCo bond deals offer debt financing to publicly listed companies. It is highly unlikely that SMEs are listed.
|Funding Amount||S$100,000 – S$1,000,000||S$1,000,000 – S$5,000,000|
|Eligible Companies||Early-stage startups||SGX/Catalist listed companies|
|Fees||6% in cash and 2% in equity|
Eligibility Criteria for Equity Financing
- Must qualify as either “Early-Stage”
- Must be incorporated for at least three months
- Have at least one Singaporean founder
- Must be majority-owned by Singaporean citizen(s) or Permanent Resident(s)
- Have at least $50,000 in contributed capital
Fundnel is another great crowdsourcing platform for startups looking for larger equity financing. This platform is uncapped and only charges a small fee of 5%. Additionally, it also allows SMEs to keep more than their initial target.
Fundnel has a large investor network of more than 7,000 and a strong track record. The total value of its completed deals amounts to approximately $100 million. Further, it offers digitized paperwork and a centralized portal for communication with investors, making the fundraising process a breeze.
They also offer other financing options, including equity, convertible bonds, revenue sharing, and bond/debt structure. For this article, we’ll be focusing on their equity financing option.
|Pros||No fixed tenure to repay principal, no interest rates|
|Cons||Dilution of shares |
Disbursement of 60-90 days
Fundnel is also selective in its application and financing process. In fact, only 10% of applicants are accepted and only 3% receive funding. That said, it’s better for larger and relatively mature SME startups.
Fundnel’s website did not state many details about their eligibility criteria. However, Fundnel expects applicants to disclose detailed information on these areas:
- Management background
- Product and brand information
- Customer focus
- Financial performance
- Industry/sector performance
- Deal and exit potential
Thanks to Enterprise Singapore, the government has helped a number of SMEs get back on their feet despite the difficulties brought about by the COVID-19 pandemic. To spot the best SME loans for your small business, take a look at the interest rate, loan tenure, and the maximum loan amount. Different banks offer different rates but it ranges between 3.5% and 7%.
However, for start-up entrepreneurs looking to get a startup business loan, you might want to consider alternative financing options. For instance, you can consider equity financing or you can borrow from licensed moneylenders.
Raffles Credit is a distinguished licensed moneylender that offers best business loans, personal loans, and other financial products. You can get a business loan or personal loan up to 4% interest rate. They not only offer financial assistance but also a suitable plan for your needs.