At any point, a business loan in Singapore may be necessary for any business to help them raise their operating capital or to fund an expansion project that will help grow their business. Companies may approach banks and other lending companies, but expectations still remain the same for all. Get your act together and be smart on your business loan application to improve your approved changes.
All businesses have critical risk factors, and you should include an unbiased analysis of this too. Before presenting your plan, study it very well and anticipate possible questions that lenders may have. Be prepared with strong and straightforward answers.
Impeccable credit history also increases your chances of finding a good business loan in Singapore, so start building a good one right away. You can basically build your credit by purchasing on credit and pay back debts on time and in full always. Take good care of your credit and ensure that it’s error-free. Creditors all want their business and money to be secured. If you’re able to show that you are a responsible lender and that you can be entrusted with their money, then business loans will be easier for you in the future.
If you have a couple of assets or properties that can back up your business loan in Singapore as collateral, this could increase your chances too of getting approved. Lenders always think about the worst-case scenario – in such an event that the borrower is unable to pay, how can I recover my money? Having collateral tells your creditor that your loan is basically secured.
Unless you are confident about your eligibility, don’t shoot for the sky. The lesser the amount you ask for in your business loan in Singapore for business, the more chances you get approved. This is why it is very important that you project thoroughly the amount that you’ll need for your loan. Too much and you risk getting rejected and less, you risk not covering the amount you need for your business expansion. Lastly, don’t give up if you fail the first time. If you can get your business loan approved on your first try, consider yourself lucky. Many people get rejected a couple of times first from different banks and lenders. What’s important is that you learn from your experience and be prepared to make better presentations.
Perfect guide to follow on getting business loans in Singapore (2020)
You can require the idea of business financing, especially if you are an SME business owner in Singapore. Indeed, it can be seen as a necessity at some point of time in your business journey! To help you more, the business loans in Singapore can be used to expand your plug-working capital gaps, commercial property, business, inventory purchases, and different rentals purchases. To get started with, here are the simplest tips and steps that you can follow for a functional approach!
Types of business loans in Singapore
Indeed, you will find different types of business loans in Singapore. Follow the list to identify one that suits you best-
Unsecured business term loan
Any of the physical collateral does not sanction these types of loans. That is you cannot use the equipment or the property to secure this type of loan. The company director’s personal guarantees only secure the unsecured business term loan. Indeed, these are the most popular loan type for SMEs due to their flexibility. Right from funding your daily operational needs such as payroll and inventory purchases to the different finance business expansion, this can be a perfect choice!
Invoice financing
Contextually, if we put it in simple terms, it refers to all the credit facilities that use invoices as collaterals. The next thing that gets qualifies for being discussed here is the evaluation criteria. It can be stated that the financial strength of the SME customers are the major prospect while you are choosing this type. The MNCs and the government are usually preferred over SME customers.
Business first loan
This facility is majorly the bet for the use of the start-ups and is a type of unsecured term loan. It is operating and is registered in Singapore between 6 months and two years! Yes, we can say that this type of loan is one of those few available loans to young start-ups. Interestingly, this is offered by OCBC Bank. Here, there is less emphasis on financial performance and the concerned company’s history due to a lack of records.
Merchant cash advance
MCA is a niche financing product that is usually only available to retail and the different F&B businesses. This type uses the concept of credit card terminals. The financials, profitability, and the SME guarantors are known to play a smaller role here. The structure for opting for this type is slightly different from others.
Business overdraft
If you are looking for the perfect alternative for the business term loans, the business overdraft can be the perfect option for you! It works great on short-term working capital. Contextually, talking about the evaluation criteria is the same as that of the unsecured OD facility and unsecured business term loan.
Venture debt financing
It is a type of unsecured business term loan. Yes, these are available to the start-ups and have been backed by venture capital investors. This facility is known to be effectively offered by DBC and OCBC.
Application process for a business loan in Singapore
Opting for a functional approach to draft the application can be a great deal! Here are the steps which you can follow for a gearing head-start!
Applying online or in the branch
You can apply through any financial institution or the branch that offers an online application platform. Or you can even visit their premises. Next is to prepare MyInfo login for online application and your NRIC. Following this, you would receive a call back from the Relationship Manager (RM). This would be just to know more about your company and business. Next, you would be allowed to submit your documents for verification. A second call back may also be experienced for many of you for any of the clarification parts for your documents. Then finally, you are ready for the process for approval.
Which bank gives the lowest business loan interest rate?
You will find different corporate loan products and banks bears different interest rate! If you see a typical business term loan interest rate can range between the mentioned rates. The rates are set at, 3.5% to 7% p.a. The effective interest rate is, thus, around 6.5% to 13%.
The typical business financing criteria and the requirement for the business loan in Singapore is given as-
- It would be best if you had a minimum annual revenue of $300K
- You must have an operational history of 1year, and would more be preferred if it is for 2 years.
- The minimum average daily balance to qualify for this loan would be $10K maintained in a bank account.
How Financial Management Can Help You Get a Business Loan
Your track record of sound financial management demonstrates that your company is a good risk to potential lenders. Find out what this means so you can get the business loan you need to grow your organization.
No matter how inspired they are by your business ideas and the mission and vision of your company, prospective lenders want to know that if they approve your business loan, you will be able to repay within a specified time frame. They will make this determination based on a variety of factors, including your business plan, financial reports (cash flow statements, balance sheets and income statements), assessed credit risk and revenue and sales projections; ultimately, they will be looking for reassurances that the money they invest in your business will be well-managed.
Proving that you understand and practice good financial management in your business can increase its attractiveness to lenders and investors of all kinds; but what does this mean? Financial management might be best-described in relationship to its goals. The goals of financial management in a business are to:
Maximize Profits
Maximizing profit isn’t about increasing sales, it’s about increasing the amount of each sale that you get to keep or reinvest in your business, over and above the cost of goods or services sold. There are three types of profit margins to consider:
- Gross profit (sales minus the cost of goods sold)
- Operating profit (earnings before interest and taxes vs. sales)
- Net profit (earnings that remain after all business expenses and taxes have been deducted)
In order to maximize profits, you first need to know which of your goods or services actually produce the most profit compared to all the costs that go into running your business. Then you need a marketing strategy to promote these identified profit centers (sometimes called “cash cows”) so that you focus most of your marketing resources on promoting those goods and services which produce the most profit.
Your ROI (return-on-investment) on individual goods and services should not only drive the way you invest marketing resources, but should also drive other marketing decisions. For instance, a low ROI on a given product or service might indicate the need to raise prices, source lower-cost inventory or remove it from your customer offerings altogether.
Minimize Costs
If lenders perceive that you are not actively managing your business’ expenses and working to reduce costs, they might worry that money invested in your company will not be used to maximum benefit. Some business owners love paying attention to the details and finding ways to cut costs while for others – not so much. However, the more efficiently you spend money in your business, the better return you will have on each dollar spent.
Minimizing costs can be done in nearly every area of your business. For instance, reducing the cost of goods sold by sourcing lower-cost products, inventory, raw materials, vendors or suppliers can help increase profit margins on goods and services. Outsourcing non-core activities such as marketing, bookkeeping, cleaning, etc. may be less expensive than hiring staff when payroll, taxes and benefits are taken into consideration (and vice versa). Using platforms that make data analysis more efficient or allow you to see your company’s data at a glance could minimize the time and resources that must be invested to produce the same results.
Even the cost of financing can be minimized by opting for business loans, micro loans and other working capital financing tools in lieu of maxing out high-interest company and personal credit cards. Every dollar that you don’t have to spend has the potential to be invested in some area of your business that produces a return on investment (like marketing) instead of being written off permanently as an expense.
Minimizing costs and cutting costs are not always the same thing. For instance, you might cut costs by eliminating an essential staff member or program that actually makes your business less efficient or less effective. What’s important is getting the most value from each dollar spent in running your business and eliminating unnecessary expenses whenever possible and practical.
Maximize Market Share
Market share refers to the amount of the market your business has captured compared to the total size of the potential market (geographical and industry) it could have. Maximizing market share often depends on having not only a good business plan, but a good marketing plan that works effectively (and continually) to increase the size of your customer base.
While some business owners see marketing as an expense, it should be viewed as an investment. Marketing is one of the few business expense line items with the potential to produce a return far in excess of the amount expended. Sound financial management requires that you are able to tie results to your marketing efforts in order to increase profit margins, ensure good value for the money spent and increase market share.
The amount of money lenders are willing to extend to your company in the form of a business loan comes down to much more than its credit score or sales history. You can prove the worth of your business to potential investors by demonstrating your understanding and mastery of financial management.
The bottom line
If you have just started with your new business and effectively sourced out for a business loan in Singapore, the above points might help you understand the basics. Remember that most of the banks require the borrowers to have 2 to 3 years of operational history before opting for the loan.