The journey of seeking a business loan can be rather overwhelming, especially for first timers. There’s a lot to unpack, including understanding the different types of loans available, what the eligibility requirements are, what documents are needed and how to begin applying. To make the experience easier for new entrepreneurs, here are some quick small business loans for first time entrepreneurs.
Launched in collaboration with Enterprise Singapore, the SME Working Capital Loan is offered by most mainstream banks in Singapore including CIMB, DBS Bank, OCBC and RHB. Several private financial institutions also provide this loan, such as ORIX Leasing and IFS Capital Ltd.
Borrowers are allowed access to a maximum quantum of $500,000 per borrower across entities, with a maximum repayment tenor of 5 years. However, it’s worth noting that this loan is specifically designed to finance gaps in operating costs such as salary payments, covering rent and utilities, buying stocks and the like.
What makes this loan unique is that although borrowers are responsible for 100% of the loan repayments, young enterprises can enjoy a risk sharing of up to 70% from EnterpriseSG.
These term loans are provided by banks as well as alternative lenders. They may be presented with different names, and slightly varying terms and conditions, but are generally designed for SMEs. The only difference is that they are not covered under the Working Capital Loan scheme with ESG. As such, this is typically only offered if an SME has exhausted their Working Capital Loan limit of S$500,000. Some examples of these types of loan include the CIMB BizGrow loan and OCBC Business First Loan.
Conventionally, SME term loans require companies to be incorporated for at least 2 years, but some banks are now offering special loans to businesses that are less than 2 years old, and as young as 6 months old.
You may be wondering why there’s another segment featuring SME term loans. We’re turning our spotlights to SME loans from Private Lenders because of their less stringent loan eligibility standards. They’re able to lend to borrowers who would usually be rejected by the banks. Because they have a greater appetite for risk, they have less qualms lending to businesses who may not live up to the stringent creditworthiness standards set by banks and other larger financial institutions such as profitability and years in operations.
Personal loans are actually ideal as startup loans for a couple of reasons. Chief among them is that most of the information the lenders might need is already in your Singpass. With a personal loan, there is no need for a business owner to report their business income records, bank statements, monthly performance reports and so on. They only need to provide proof of identity personal income, which can be done with fewer documents.
On the other hand, new businesses may encounter issues with documents like income statements or bank statements, especially if they are still in the process of establishing themselves with no profit or sales to show.
Personal loans also have other advantages for first time entrepreneurs, in that they offer loan quantums which are 4X to 8X your personal income. SME business loans usually disburse loans which are in proportion to business revenue. This may not be feasible if your business revenue is low or negligible.
This next type of business financing to consider as a first time entrepreneur is invoice financing. This option, however, is practical only if your business has successfully completed some sales with a client or more. The process involves selling unpaid client invoices to a financier, who will disburse 80-90% of the invoice value to you and take on the task of managing collection of said invoice from the client.
This form of financing helps free up capital and improve cashflow. It also offers the added advantage of not being a liability to the business, as it provides funding that is already owed to the business and is not a debt that has to be repaid.
The only drawback for invoice financing is that it is only applicable for companies that have already closed sales, and cannot be accessed by startups that need funding to begin.
Eligibility terms often differ depending on the type of loan provider. As a first time entrepreneur, you can make your application smoother if you fulfill the following criteria:
Streamline your loan application with Lendingpot. Our platform connects you with multiple financial institutions so you can compare interest rates, repayments and eligibility, quickly and transparently. Sign up today and let us help you achieve your business goals
Lina heads up all things marketing and branding at Lendingpot. With a keen aesthetic eye, she believes in the use of design to communicate with our SME community and aspires to turn Lendingpot into a household name. Out of work, she is an avid camper and appreciator of nature’s best works.
