Can a Micro Loan Help My Small Business?

Micro loans can give small businesses essential funds to maintain and grow their operations. These flexible, short-term loans can be a very useful alternative to larger business loans.

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What Are Micro Loans?

Micro loans are a type of short-term business loans. They are the smallest loans available to Singaporean SMES; typically the maximum financing amount is capped at S$100,000. These loans provide small businesses with flexibility, as they can be used for many different purposes. For example, micro loans are often used for daily operations or immediate financial obligations.

What Are the Benefits of Micro Loans?

Micro loans give small businesses a small amounts of financing that could make a big difference for businesses that are short on cash. Further, some micro loans disburse cash quite quickly. For example, the FS Bolt allows eligible applicants to receive funds within 24 hours. This immediacy may be crucial for companies with immediate cash needs.

What Are the Costs of Micro Loans?

Typical interest rates for micro loans range from 6 - 16%. In general, short-term loans, including micro loans, charge higher interest rates than long-term loans. This is because lenders require higher returns from short term investments to make them worthwhile compared to long-term investments that feature longer return profiles.

Banks tend to offer lower interest rates for micro loans (from 6.75%), while P2P/Crowdfunding platforms tend to charge higher rates (8 - 25%). Additionally, micro loans from banks tend to be larger (up to S$100,000) than P2P/Crowdfunding micro loans (up to S$50,000). However, banks generally have stricter eligibility requirements, which makes P2P/Crowdfunding platforms a great alternative for micro loans.

What Type of SMEs Should Consider Micro Loans?

SMEs that need short-term financing to run their business operations are likely a good fit for micro loans. Other businesses might be better off seeking other financing options. For example, larger businesses that are able to qualify for longer-term loans with lower interest rates would be better off pursuing traditional business term loans. Businesses that require very large amounts of financing or or do not have the capability to make interest payments might be better off seeking equity financing.

Micro Loan Summary Table

BanksP2P/Crowdfunding Platforms
Financing AmountUp to S$100,000S$5,000 - S$20,000
DurationUp to 4 yearsUp to 6 months
Interest RatesFrom 6.75%1% - 25%

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Stephen Lee

Stephen Lee is a Senior Research Analyst at ValueChampion, specializing in insurance. He holds a Bachelor of Arts degree in International Studies from the University of Washington, and his prior work experience include risk management and underwriting for professional liability and specialty insurance at Victor Insurance. Additionally, Stephen is a former US Peace Corps Volunteer in Myanmar (serving between 2018-2020), where he continues to provide business development consulting services to HR companies in Asia Pacific.