An Entrepreneur’s Guide to Business Loans and Why You Need One

Leveraging business financing is an excellent way for entrepreneurs in Singapore to turn their ideas into profitable ventures. Particularly for small and medium-sized enterprises (SMEs), business loans from banks and financial institutions offer significant opportunities to expand operations while improving cash flow management.

If you’re new to business loans, this guide covers how they work, the different types available, how to apply for them, and a few of the top loan packages in Singapore.

How Business Loans Work
Business loans in Singapore are designed specifically for funding business-related activities, such as purchasing assets, acquiring businesses, or improving working capital. Whether you’re managing an SME or a larger corporation, various loan types cater to different needs.

To qualify, you must meet the lender’s requirements and provide a business plan to demonstrate that the funds will be used appropriately. You’ll also need to submit financial documents such as income tax statements, bank statements, and projected financials. Lenders will review these to determine your business’s eligibility.

Once approved, you’ll receive a lump sum of cash to repay over time. Interest rates, fees, and repayment terms differ across lenders. For example, unsecured business term loans may have interest rates ranging from 0.1% to 15% per annum, with monthly fees between 1% and 8%.

Pros and Cons of Business Loans
Before taking out a business loan, it’s important to weigh the pros and cons. Business loans offer entrepreneurs in Singapore the chance to recalibrate their businesses and pursue new growth opportunities. Moreover, loans often provide flexibility in terms of how you can use the funds. Unless the loan is tied to a specific purpose (e.g., commercial mortgage or vehicle loan), lenders typically allow the borrower some freedom in using the funds.

However, strict eligibility requirements apply. Lenders will consider factors such as your business’s credit score, annual revenue, years of operation, and the strength of your business proposal before approving the loan.

Types of Business Loans in Singapore
Business loans in Singapore are typically categorized as secured or unsecured. Secured loans require collateral or a guarantor, while unsecured loans do not. Common types of business loans include:

Basic Business Loans: Unsecured loans with flexible repayment periods of 1-5 years. Businesses typically need an annual revenue of at least S$500,000 to qualify.

SME Loans: Designed to help small local businesses and start-ups, these loans can be used for working capital or asset purchases. Government Assistance Schemes also provide additional financing options for SMEs.

Equipment Financing Loans: Specifically for purchasing or upgrading business equipment. Loans may cover up to 90% of the equipment cost.

Start-Up Business Loans: These are term loans with a maximum loan sum smaller than traditional business loans, ideal for new businesses that lack a solid financial track record.

Invoice Financing: This type of loan allows businesses to sell unpaid invoices to banks in exchange for immediate cash, improving cash flow management.

Best Business Loans Available in Singapore
If you’re ready to apply for a business loan, here are some recommended options:

Best SME Loan – Funding Societies’ Micro Loans
Maximum Loan Sum: Up to $2,000,000 for secured loans; $1,500,000 for unsecured loans
Fees: 1% to 7%
Interest Rate: From 1%
Loan Tenor: 1 to 12 months (renewable)
Fast approval within 24 hours for eligible businesses.
Best Traditional Bank Loans – DBS Business Loan
Maximum Loan Sum: $500,000
Fees: $500 to 2%
Interest Rate: 7% to 11%
Loan Tenor: Up to 5 years
Convenient online application through Myinfo Business for all Singapore-registered businesses.
Largest Loan Sum – Minterest
Maximum Loan Sum: Up to $5,000,000
Fees: 2% to 6%
Interest Rate: 6% to 15%
Loan Tenor: 1 to 12 months
Ideal for larger businesses with a turnover of at least $500,000.
Business loans provide entrepreneurs with the capital needed to grow their ventures. By carefully evaluating your options, you can select the loan that best meets your business’s needs and sets you on the path to success.