A Guide to Getting Business Loans in Singapore

If you own a small or medium-sized enterprise (SME) in Singapore, you will almost certainly need business funding at some time along your journey. There are various options for business financing in the city-state, ranging from banks to private financial institutions. But, with the different types of business loans out there, how can you streamline the process of securing the funds needed for your business?

In this article, we provide SME owners in Singapore with the information they need to get business loans in Singapore.

Types of business loans available in Singapore

Here are a few common types of business loans SME owners can opt for in Singapore. 

1. Government-assisted business loan schemes 

These loans are administered by Enterprise Singapore (ESG) and their participating financial institutions (PFIs). They appeal to SMEs because they include a government risk-share of up to 90%.

There are three main credit facilities that ESG offers:

A. Enterprise Financing Scheme – SME Working Capital Loan (EFS – WCL)

For SMEs in Singapore, this business loan has a maximum loan amount of $1 million and a 5-year repayment period. Furthermore, the cooperation between Enterprise Singapore and 17 other financial institutions backing this plan includes a 50% to 70% risk-sharing agreement.

The credit conditions and interest rates for this program may vary per bank, but the following are the minimum requirements:

• Be a physically present, registered, and running business entity in Singapore
• Has a minimum annual turnover of S$500 million and at least 30% local equity held directly or indirectly by Singaporean(s) or Singapore permanent resident(s)
• The SME definition of “working capital” relates to a group’s revenue of up to S$100 million or a maximum workforce of 200 employees.

B. Enterprise Financing Scheme –  Trade Loan (EFS – TL)

The enhanced EFS-Trade Loan (EFS-TL) has been extended for six months, from 1 October 2021 to 31 March 2022.  This loan can help SMEs cover their trade needs, such as:

• Inventory/ stock financing
• Structured pre-delivery working capital (revolving working capital)
• Factoring (with recourse) or bill of invoice/AR discounting
• Overseas working capital loan
• Bank Guarantee (capped at two years tenure)

EFS-TL has a maximum loan quantum of S$10 million per borrower with a maximum repayment period of one year.  Borrowers are subject to an overall borrower group limit of S$20 million. In addition, there is an overall loan exposure limit of S$50 million per borrower group across all facilities.

C. Temporary Bridging Loan Programme (TBLP)

TBLP, which was introduced in the Solitary Budget 2020, enables SMEs to acquire finance (up to $5 million) with lower interest rates that are capped at 5% per year. Furthermore, the government will share 70% of the risk with 19 participating financial institutions under this financing option.

SMEs who are eligible for the TBPL program can find out their interest rate by contacting one of the participating financial institutions. The eligibility requirements are:

• Be a registered and physically present business entity in Singapore
• Singaporean(s) or Singapore PR(s) control at least 30% of the local equity, as defined by the ultimate individual ownership

2. Unsecured business term loan

Personal guarantees from company directors are used to secure unsecured business term loans, which are not guaranteed by physical collateral like property or equipment.

Because of their flexibility, these loans are popular with SMEs. They can be used to fund daily operations like inventory purchases and salaries, as well as business expansion plans like leasing a new retail location.

Assessment Criteria

Financial institutions will assess a business based on its historical financial performance and current bank statement data. They will also consider the personal credit histories of the guarantors.

Loan structure

A typical unsecured company term loan is for up to $500,000 with a 1 to 5-year repayment duration. Interest rates range from 7% to 12% per year, with administration fees ranging from 1% to 5% of the accepted loan amount.

The repayment pattern for unsecured business term loans is often “Principal + Interest.” However, for exceptional cases, these term loans may also have an “Interest Servicing Only + Bullet Repayment” pattern. 

Different institutions have different loan amounts, terms, fees, and repayment schedules. Therefore, it is critical to select an unsecured business term loan that is both reasonable and meets your business requirements.

3. Merchant cash advance 

Merchant Cash Advance (MCA) is a specialized financing option accessible solely to retail and food-and-beverage establishments that use credit card terminals.

Assessment Criteria

Credit card transactions of an SME during the previous six months are the main criteria for an MCA facility. The SME’s financials, profitability, and guarantors will play a lower role and will only be considered if the SME demands a loan amount that is higher than typical.

Loan structure

The advance amount (loan quantum) available from the MCA is derived by aggregating monthly credit card transactions over the previous six months and multiplying 1.5 to 4 times (for example, if the average monthly transaction is $10,000, the advance amount available may be $15,000 – $40,000).

This loan amount will be issued to the SME at the commencement of the facility, and it will be repaid over a six to nine-month period.

4. Invoice financing

Another popular and still relatively new type of business loan for SMEs is invoice financing. It works by obtaining a cash advance from a lender utilizing your outstanding invoices. Most B2C companies, especially those that do not invoice clients, will not be eligible for this form of credit. 

Assessment criteria

Customers who work for the government or a multinational corporation (MNC) are frequently favored over those who work for a small business.

A verifiable track record of service performance or previous transaction history is required from the borrower. During the credit review process, the SME’s profitability and financial performance will be less important during the credit review process.

Loan structure

When you use invoice financing, the lender advances you a portion of your total invoice amount (for example, 80%) and keeps the rest. You can utilize the advance to cover expenses while waiting for your clients to pay. A weekly fee will be paid by the lender. The lender will reimburse the remaining 20% once your consumer has paid.

5. Business overdraft

An unsecured overdraft (OD) arrangement is often recommended for SMEs who seek short-term working capital as an alternative to business term loans.

Assessment criteria

The assessment criteria for an unsecured business term loan and an unsecured OD facility are the same. SMEs will be assessed holistically based on their previous financial performance and current bank statement records. In addition, their guarantors’ personal credit histories will be considered as well.

Loan structure

However, when compared to an unsecured term loan, the structure of an OD facility is vastly different. Instead of a lump-sum payment, an OD facility gives SMEs a line of credit. Furthermore, only the amount that has been utilized is subject to interest. Multiple withdrawals of any amount up to the credit limit are also possible with the OD line.

Unlike a term loan, which has a fixed monthly payback, SMEs must make a minimum monthly repayment of 20% of the outstanding amount on their OD credit line. This is analogous to the use of a credit card. Moreover, only the amount withdrawn and the time period for which it was used will be assessed interest (daily interest rate).

6. OCBC Business First Loan

The Business First Loan is an unsecured term loan offered by OCBC for young startups that have been registered and operating in Singapore for between six months and two years.

Assessment criteria

The firm directors’ (guarantors’) declared incomes and personal credit records are the major evaluating factors for this facility. At least one guarantor must earn at least S$30,000 each year.

An SME may be able to acquire a greater loan amount, up to a maximum of S$100,000, if (a) there is more than one guarantor, (b) guarantors have high stated incomes (combined), or (c) guarantors have good personal credit records, according to previous experience.

Loan structure

The Business First Loan is structured similarly to a term loan. SMEs will get a lump-sum payment at the start and will be obliged to return the loan in equal monthly installments for a maximum of four years.

7. Venture debt financing

Venture debt finance is a sort of unsecured company term loan made accessible to firms with venture capital backing. DBS and OCBC provide this service.

Unprofitable businesses have generally been unable to obtain loan financing from banks. However, in recent years, underperforming firms have been able to secure multi-million (or billion) dollar venture capital investments. Hence, the venture debt financing program was established to help these businesses bridge the funding gap.

Assessment criteria

The financial institution will assess the company based on the amount of venture capital money it has received, as well as its innovation solution or business strategy.

Since most startups applying for this facility are not profitable, less focus is placed on the company’s history and financial performance.

The venture debt facility’s maximum loan amount is limited to 30% of the total venture capital raised in the previous equity round.

Loan structure

The format of a venture debt financing facility is similar to that of a term loan. SMEs will be given a lump sum payment at the start and will be obliged to return it in equal monthly installments.

Eligibility criteria to apply for business loans in Singapore

Every financial institution in Singapore evaluates business loan applications for SMEs using a standard set of qualifying criteria. The eligibility criteria are distinct from those used to assess creditworthiness. Even if an SME qualifies for a business loan, it may still be denied if the credit review procedure fails.

In general, here are the basic eligibility criteria to apply for a business loan:

• Your company is incorporated in Singapore;
• has been operating for at least 2 years;
• has revenue of at least $300,000; and
• has at least 30% of shareholding owned by Singaporeans/Singapore PRs.

Necessary documents to apply for business loans in Singapore

Having all the required documents on hand before applying for a business loan might help you get the funding you need. So, to make your life easier, we’ve compiled some most important documents you’ll need to apply for a business loan.

1. A business profile from ACRA

To begin, financiers will require your company’s business profile information from the Accounting and Corporate Regulatory Authority (ACRA), which is a document that shows your business information, directors and shareholders, as well as your company’s paid-up capital. With this business profile, financiers can identify the company’s directors, learn about the type of business you’re in, and decide who to bring in as a guarantor if necessary.

As a registered filing agent, Biz Atom can assist you in registering your business with ACRA so that you can get your company profile. The business registration is usually processed within less than a day. However, it may take between 14 days to 2 months if the application needs to be referred to another agency for approval or review.

2. Notice Of Assessment (NOA) of all directors

Financiers would also require your company’s directors’ Notice of Assessment (NOA) for the previous two years in order to learn about their claimed earnings. It’s important to remember that the NOA here refers to the directors’ personal NOA, not the company’s NOA.

The directors’ income in their personal NOAs would be used by financiers as one of the elements to evaluate when assessing a borrower’s acceptable business loan amount and tenor. The NOA, when combined with the Credit Bureau Singapore (CBS) report, provides a picture of the total debt-to-income ratio for financiers. 

Financiers are less likely to lend if the quantity of unsecured debts exceeds the director’s income since the directors will be viewed as less capable of repaying the loan.

3. Credit Bureau Singapore (CBS) report of all directors

The CBS report must be submitted in order for financiers to see your company’s directors’ repayment histories, current loans, and outstanding unsecured loan amounts. In other words, when a borrower applies for a loan, it demonstrates their creditworthiness to the lender.

4. Company’s financial statements

You will be required to provide your company’s financial statements for the previous two years, which are a series of documents that detail your company’s financial activity.

All financiers in Singapore would demand a copy of your company’s most recent two years’ Profit & Loss Statements and Balance Sheets to determine your company’s historical performance. These records can be received via your company’s auditors or accounting software.

If your business is less than two years old, you can show your first-year financial accounts to the financiers and explain what you’ve accomplished thus far.

5.  Company’s bank statements

In addition to financial statements, financiers will also require copies of bank statements in order to investigate your company’s day-to-day bank account operations.

These bank statements show the business’s revenue and spending, as well as the account balance at the end of the month. One of the reasons funders want this is to determine whether the company has enough cash on hand to repay the loan at the end of each month.

6. The accounts receivables aging list 

The accounts receivables aging list is another document you might have to provide. It contains a list of your clients’ names as well as the amount you expect to collect from them for the items or services you have provided. The document also displays your total debts, as well as the length of time these debts have been past due and your clients.

How to improve your chances of getting business loans

Here are three strategies to improve your chances of getting your business loan application approved.

Get all your documents in order

All financial institutions will demand a uniform set of documents to be submitted throughout the application process, including your ACRA business profile, profit and loss statements, bank statements, directors’ NOAs, and CBS reports. So, ensure that these records are as up-to-date as possible, particularly if the company has grown since the previous financial year.

Consider submitting a management account of the profit and loss statements for the last six months if the most recent audited profit and loss statements were more than six months ago to highlight the company’s growth and increased profitability.

If you need assistance in preparing your financial statements, Biz Atom can also handle this time-consuming task for you. Check out our flexible accounting packages to find the most suitable plan for you. 

Clear all existing personal debts

A good credit score is one of the most straightforward methods to breeze through the loan application process. It can help speed up the process and, in some cases, even influence whether your application will be approved. If you have a bad credit score, you may have to wait significantly longer for your loan application to be approved, and you may not be able to fund the first wave of capital needed to launch your firm on time.

Know how much loan you need

When you contact any financial institution for a loan, one of the first questions you’ll be asked is how much money you need for your business. So, it’s a good idea to calculate how much you want to borrow carefully.

Asking for less than you need could deplete your company’s operating capital and cause cash flow problems. Requesting a larger loan amount than you require may result in extra future charges since you must repay the loan amount, including the business loan interest charged.

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