SME Loans

4 Key Factors to Keep In Mind to Secure Your SME Loan in Singapore

Looking for an SME loan in Singapore? Here are 4 key areas to consider to help you secure your SME loan!

As a small business, it is not uncommon that cash flow will be tight. In such circumstances, small businesses may turn to Small and Medium Enterprises (SME) loans to finance their expenses. While there are numerous loan companies offering SME loans in Singapore, whether you manage to secure your loan depends greatly on your individual company’s situation. Read on to find out what you need to keep in mind when applying for your SME loan in Singapore.

SME Loan Explained

Essentially, an SME loan is a business loan given by financial as well as non-financial institutions, to small businesses to help them boost cash flow. As a business is multi-faceted, there are several different types of SME loans available in the market.

Factors to Consider to Secure Your SME Loan

Taking notes

In order to maximise your chances of securing your SME loan, below are four factors that you should consider to secure your SME loan.

Timing Is Key

Stressed

A key mistake made by businesses is that they only source for loans when they are tight on cash. However, doing so will lower your chances of securing your loan.

Applying for a loan only when your business is facing a cash flow crunch will only damage your company’s credit score as there is a greater risk that your company will be unable to repay the loan. Further, financial institutions are more likely to extend a loan to those with lower risk and will not give out loans to any SME.

Evidently, when you apply for a loan plays a significant role in determining your chances of securing your loan. As such, do plan 6 to 12 months in advance and apply for SME loans when your company is in its best financial position.

Type of Loan

Loan

With the various SME loans available in the market, it is perfectly normal that you feel overwhelmed. To help you better understand the types of loans that you can apply for, we have summarised the top six types of loans available for SMEs in Singapore.

Government Assistance

During the COVID-19 pandemic, the Singapore government introduced Government-Assisted loans to support businesses struggling in Singapore. Administered and handled by Enterprise Singapore (ESG) alongside the participating financial institutions, they have come up with two loan schemes suited for SMEs.

Enterprise Financing Scheme

An umbrella scheme for the financing schemes offered by Enterprise Singapore, the EnterPrise Financing Scheme (EFS) covers seven areas to address business’ financing needs. These include green projects, SME Working Capital Loan, SME Fixed Assets Loan, Venture Debt Loan, Trade Loan, Project Loan as well as the Mergers & Acquisitions Loan.

Consider this if you are interested in micro loans, equipment and factory loans, or venture loans for your SME
  • Max Financing
    • S$300,000; S$5,000,000; S$8,000,000; S$10,000,000; S$15,000,000; S$30,000,000; S$50,000,000
    • Fees
      • Depends on the type of loan borrowed
      • Interest Rate
        • 0.1%
        • Eligibility
          • Be a business entity that is registered and physically present in Singapore
          • At least 30% local equity held directly or indirectly by Singaporean(s) and/or Singapore PR(s), determined by the ultimate individual ownership
          • Have Group Annual Sales Turnover of not more than S$500 million.

          With regards to the SME Working Capital and SME Fixed Assets, Enterprise Singapore defines SME as

          • Group revenue of up to S$100 million or maximum employment of 200 employees.
          Temporary Bridging Loan Programme

          Recently extended to 30 September 2022, the Temporary Bridging Loan Programme (TBLP) provides access to working capital for business needs. Under the TBLP, businesses will be entitled to maximum funding of S$1 million with a repayment period of up to five years.

          To be eligible for the EPS, you need to fulfill the following criteria:

          • Be a business entity that is registered and physically present in Singapore
          • At least 30% local equity held directly or indirectly by Singaporean(s) and/or Singapore PR(s), determined by the ultimate individual ownership

          Unsecured Business Term Loans

          Unsecured Business Term Loans are issued and supported by the borrower’s creditworthiness. A borrower’s creditworthiness is often determined by your business’ financial health, repayment history, and credit score.

          Popular for its flexibility, SMEs often take up such loans to fund both their daily operations and business expansion plans such as opening a new retail outlet.

          Further, such loans are also collateral-free. As such, unsecured business term loans can be disbursed quickly and at short notice. Having said that, because it is collateral-free, unsecured business term loans often carry high interest rates.

          Business Term Loan

          Business term loans involve borrowing a sum of money from a lender, normally banks, and paying it back on a fixed schedule over a stipulated period of time, also known as a term.

          While the majority of lenders have a fixed interest rate, there are a few which offer variable interest rates.

          Invoice Financing

          A channel for small businesses to borrow money against the amounts due from customers, invoice financing aids businesses in boosting their cash flow. By boosting the business’ cash flow, it helps small businesses to pay their employees, suppliers as well as make investments.

          Invoice financing can be done either through factoring or discounting. Invoice factoring involve the business (borrower) selling its unpaid invoices to the lender, who may pay the business up to 90 percent of the invoice amount upfront. The lender will then remit the remaining ten percent to the business who will then pay interest for their service.

          On the other hand, for invoice discounts, the business collects money from customers. Should However before customers pay their invoices, lenders will pay the business up to 95 percent of the invoice amount. Once the business receives payment from the customer, they will repay the lender the total amount on top of a fee and/or interest.

          Venture Debt

          Venture debt is designed for startup small businesses with fast growth potential that already have venture capital funding. Unlike typical business loans, venture debt does not require borrowers to offer their assets to serve as collateral. In most cases, the principal amount of debt, or money borrowed, is 30 percent of the total funds raised in the last round of equity financing. Equity financing is essentially raising capital via the sale of shares.

          Venture debt is usually paid off through interest payments, either based on the prevailing rates that the banks charge or the Singapore Interbank Offered Rate (SIBOR), a benchmark interest rate.

          To make up for the high default risk and to ensure that the lenders receive a fair level of return, warrants are issued by borrowers. Such warrants provide borrowers with the right to buy the company stock at a specific price within a specific period of time.

          Business Line of Credit

          Similar to a credit card, a business line of credit is a type of loan issued to SMEs. It provides SMEs with a line of credit that can be used at any time. However, unlike a credit card, you may offer collateral to secure your business line of credits. As such, interest rates charged will be lower.

          During the draw period, SMEs may tap onto the line of credit through writing checks or cash withdrawals. Further, interest will only be incurred on the amount that you borrow.

          Once the credit limit has been reached, the repayment period begins. During the repayment period, SMEs will not be able to borrow beyond their credit line and must pay the outstanding amount through fixed monthly payments.

          Who to Apply To

          Singapore banks

          Apart from the traditional banks, there are other financial institutions as well as money lenders who offer SME loans.

          Licensed Banks

          Banks are typically the first financial institution that you would think of when you intend to apply for an SME loan. In Singapore, banks that you may take an SME loan from include but are not limited to the following:

          • DBS
          • UOB
          • OCBC
          • Standard Chartered
          • Citibank
          • HSBC
          • Maybank
          • RHB

          While getting a business loan from a bank may sound tempting, their approval rates are relatively low. This could be attributed to the strict filtering and approval process. Normally, most banks look out for the following attributes:

          • Revenue
          • Business owner’s credit score
          • Age of the business
          • Profitability ratio (for example the profit margin or Return on Equity)

          As such, do keep in mind the above factors when filling in the application form and ensure that your business performs well in these areas.

          If your business is keen on applying for an SME loan from a bank, our top pick would be the DBS Business Term Loan.

          DBS Business Term Loan
          DBS Business Term Loan
          Consider this if your SME has a strong track record and is looking for a traditional bank loan
          • Max Financing
            • S$500,000
            • Fees
              • > of S$500 or 2%
              • Interest Rate
                • 7% - 11%
                • Eligibility
                  • Be incorporated and operating in Singapore. Have at least 30% local shareholding.

                  DBS advertises attractive business loans with competitive interest rates (from 10.88%), maximum loan sizes (up to S$500,000) of up to 5 years. They also offer a variety of other products with higher-than-average maximum amounts to borrow. Taking a traditional banking loan or line of credit is ideal for companies who have a stable source of income or annual sales.

                  Non-bank Financial Institutions

                  Licensed by the Monetary Authority of Singapore (MAS), there are also financial institutions that offer SME business as well as startup business loans in Singapore. While such firms may not offer all the services that banks offer such as foreign exchange services, businesses big or small normally have a higher chance of securing a loan with them.

                  Hong Leong Finance as well as Sing Investments & Finance Limited (SIF) are two of the many non-bank financial institutions in Singapore. Click here for the full list of Participating Financial Institutions (PFIs) under the EFS.

                  If you are looking to borrow from a non-bank financial institution, you can consider Validus.

                  Consider this if your SME requires a larger amount of capital over a short period of time.
                  • Max Financing
                    • S$250,000
                    • Fees
                      • 1-2.5%
                      • Interest Rate
                        • 8.3% p.a.
                        • Eligibility
                          • ACRA-registered private limited companies that have been in operations for at least 2 years. Minimum annual revenue of S$500,000.

                          Validus is a cost effective option for many businesses due to its competitive rates that start at 0.67% per month or 8.7% p.a. Additionally, the platform offers competitive cash disbursement, with 90% of approved businesses receiving funding within 48 hours. Loans range up to S$250,000 for 12 months, making Validus a good option for small to medium short-term loans.Aside from term loans, Validus also offers a variety of other financing options, including invoice financing, purchase order loans and working capital loans. Overall, Validus Capital can be a good choice for more established SMEs who want to use a straightforward platform to borrow money.

                          Peer-to-peer Lending

                          Connecting SMEs to individual investors looking to finance business loans, peer-to-peer lending platforms facilitate the process.

                          On such platforms, potential borrowers, in this case, SMEs, will be listed. Investors will then analyse their individual profiles as well as credit scores before deciding to issue a loan to them. Similar to loans given by non-bank financial institutions, the eligibility criteria are also less strict compared to that of banks. Lenders, or the investors, profit from the interest of the loan amount. As such, peer-to-peer lending benefits both the lender and the SME.

                          For those who intend to take up a loan using a peer-to-peer lending platform, we recommend Funding Societies.

                          Funding Societies Micro Loans
                          Funding Societies Micro Loans
                          Consider this if your small business seeks working capital loans and invoice financing
                          • Max Financing
                            • S$3,000 - S$100,000
                            • Interest Rate
                              • 1 - 4% p.m.
                              • Eligibility
                                • 6 months operating history, Singaporean registered, and minimum 30% local shareholding.

                                Funding Societies' FS Bolt is the only loan that offers near-instant access to cash–within 24 hours— up to S$100,000. Because the interest rates range between 1%-4% p.m. and the processing fee is 1%-5%, this microloan is relatively inexpensive compared to other long-term loans in the market. While you can only borrow money for up to 12 months, this is a common feature for many SME loans.

                                Funding Societies also has a competitive invoice financing product. This also allows customers to withdraw 80% of their invoice(s) up to S$1,000,000. To be eligible, businesses only need to be in operation for at least 6 months, rendering Funding Societies a great choice for new businesses and startups. Companies are also not required to submit operational history or financial history, and there is no collateral needed or charges for early repayment. With over S$2 billion funded, the firm has a proven track record of helping SMEs.

                                Eligibility Criteria

                                Checklist against requirements

                                Each financial institution and lender will have its own eligibility criteria. However, the majority of them will follow a basic set of eligibility criteria to filter out SMEs that are eligible for SME loans.

                                Eligibility Criteria
                                IncorporationSingapore
                                Years in Operation≥ 2 years
                                Revenue≥ S$300,000
                                Shareholding≥ 30% owned by Singaporeans / Singapore PRs

                                Having understood the four key factors to consider when applying for an SME loan, feel free to browse through our review for the Best SME Loans for Small Businesses in Singapore 2022 to find the best SME loan for you!

                                Benedict Khong

                                Ben spent 3.5 years working in London in a British bank and subsequently, a FinTech startup. Upon returning home to Singapore, he spent 4 years at a local FinTech startup where he combined financial data with non-traditional data sources to provide loans to over 10,000 SMEs. He has also spent time at Amazon, building up the data infrastructure for the APAC Leadership team. Today, Ben works as a product and data consultant with several local FinTechs and SMEs.