You feel that your business requires additional working capital in order to survive or expand.
Unfortunately, the banks have rejected your business loan application. You think a business loan broker might be able to help you get the capital you need.
Ask yourself: Why are you hiring a business loan broker in Singapore?
This is important because it solidifies your business decision and will guide subsequent actions
You want to hire a loan broker because:
a. You rather spend time focusing on growing your business and let someone else handle the tedious application processes of the banks?
b. You have exhausted all your options and none of the banks you know are willing to extend a credit line to you?
c. You think business loan brokers can provide consultancy services such as helping you identify your business needs, recommend the required type of loans or improve your business parameters and credit scoring?
If option (a):
Most SME business loans offered today are program lending, based solely on the details of the documents that you submit. Thus, once you have gathered the required documents, it will not take too much time to send it to another bank or financial institution for evaluation.
If option (b):
Many loan brokers have an extensive network of connection to banks and financial institutions which makes application easier. However, you will be surprised to know that some loan brokers are also using the same method of connection you are, namely, google searching and calling!
If option (c):
Most loan brokers were previous bank officers, who have spent time analysing and assisting many small business owners and have become extremely experienced on how to qualify for a loan. They are mostly able to provide sound advice and coaching on how to qualify for a business loan (i.e. bank statements should not go into excess).
Ask your loan broker: How can they help you get a business loan in Singapore?
Are they merely sending it out randomly, using their connections or are they providing any other value-added services?
As the rationales are indicated above, some solutions and services provided by the business loan broker may be more “worth paying for” compared to others in any given situation.
Ask your loan broker: What is the total cost of this service?
It is important to know the full terms and conditions of this service as these loan brokers will often require small business owners to sign a “contract” with them before carrying out their service.
This is done to ensure that business owners will not refuse to pay them after the job is done.
Some common type of payment is:
a. A small upfront fee ($100 – $300) and a percentage of total loan amount given by a financial institution to the SME (1 – 3%)
b. Free upfront service and a larger percentage of the total loan amount (2-5%)
Be careful not to get into unequal contracts with unscrupulous business loan brokers.
We have seen cases (in 2018 no less) where the loan broker locks up the small business owner with a contract for a fee of at least 8% of any loan that the broker manages to find.
However, the unscrupulous part is when the contract also demands the same fee even if it is the owner, and not the broker, who manages to get other types of financing for up to a year!
Ask yourself: Can you afford to pay for this service?
This is a simple way to look at the fees and determine.
a. Unsecured Term Loan Interest Rate = 12% effective interest rate (EIR)
b. Bank Facility Fee = 2% (paid upfront)
c. Loan Broker Fee = 4% (paid upfront)
For a one year loan, your minimum profit margin required (a+b+c) is at least 18%.
Ask your loan broker: Is there any other type of loans that could be more beneficial to my business?
The benefits of working with a business loan broker in Singapore include having multiple lenders to choose from and exploring multiple loan types that could be useful for your business.
Every single loan type has its own sets of pros and cons to be acknowledged.
Be wary if your loan broker does not take the time to discuss these options with you. Sometimes, it may indicate that the broker’s interest may not be aligned with yours.
Sometimes, this means that a certain bank or a certain type of business loan product may be paying them a higher commission for their referral of your business.
So, should you engage business loan brokers in Singapore?
Yes, you should, but find the right one.
a. Business loan brokers get much faster responses from banks and relationship managers.
b. Business loan brokers can help to negotiate for a lower interest rate.
c. Business loan brokers can provide clarity and guidance, especially useful for small business owners.
d. In urgent conditions, business loan brokers can also provide a direct route to the quickest lenders.
About The Author
Eric Koh is passionate about helping SMEs grow and has spent years interacting with business owners at OCBC and IFS Capital. He is interested in 70s Rock n Roll, the odd novel and copious amounts of historical trivia.
Connect with him via email@example.com