Common Business Loans in Singapore


Singapore is one of Asia’s most connected financial centres. Small business owners are not only well supported by the large local and foreign banks, but they also have access to numerous other financial institutions.

These financial institutions, peer-to-peer crowdfunding platforms and private lenders provide an alternative channel for financing those SMEs who may require additional funding.

Let’s take a brief look at the most common business financing instruments available for SMEs and startups in Singapore.

Types of Business Loans

1. Business Term Loan

This is the most common and basic business loan available in the market. You do not require any physical collateral, such as properties, to apply for a Business Term Loan.

Thus, it is also known as an Unsecured Business Term Loan, which implies that it is not “secured” by any physical collateral.

However, these loans will most likely still require personal guarantees from the directors/owners of the business so that an individual will be ultimately responsible for the repayment of the loan. (why?)

Common terms associated with this loan,

  • Quantum (the amount you are borrowing)

  • Tenor (the period you are borrowing for)

  • Admin Fee/Processing Fee (a one-time payment payable at the start of the loan)

  • Interest Rate (the annual fee you are paying for taking this loan, monthly or annually, simple or effective interest, be sure to ask clearly!



  • A lump sum disbursement

  • Equal monthly repayment

  • Typical fees include interest rates and admin/processing fee

  • Requires personal guarantee

Typical Use Case

  • Business expansion

  • Rental downpayment

  • Large inventory purchase

2. Overdraft

This is a common business financing product usually considered as a “Line-of-Credit”.

Instead of giving you a lump sum amount, where you are charged interest immediately on the entire quantum (borrowing amount), the bank gives you an overdraft account where there is a credit limit (e.g. $50,000) which you may chose to use whenever you require.

You may also chose to use the overdraft partially. In that case, interest is calculated only on the amount that you have “used”.

Typically, there is also a “minimum repayment” of about 20% of amount used at the end of every month, failing which, default interest may be payable. This is similar to the concept of credit cards.

Pros and cons compared to an business term loan are,


  • Flexible usage

  • Pay interest only if facility is used

  • Can be used as a standby facility for unexpected spending


  • Interest rates are typically higher

  • More fees to pay (annual renewal fee)

  • 20% repayment at the end of the month may be tough to manage, much higher than the monthly repayment amounts of business term loans. Might not be feasible for users who intend to use the entire overdraft sum.



  • A line of credit

  • Pay interest only if you use the facility

  • Interest calculated on daily basis

  • Minimum repayment at the end of every month

  • Typical fees include admin/processing fee, annual renewal fee & interest rates

  • Requires personal guarantee

Typical Use Case

  • Ad-hoc inventory purchase

  • Short term working capital requirements where payments cannot be late, such as paying employees’ CPF contributions

  • As a stand-by credit facility

Lendingpot connects your business to over 30 financial institutions in Singapore.

3. Invoice Financing

As the name suggests, Invoice Financing is a credit facility where your invoice is used as a collateral for you to secure a loan.

These are invoices that a company have issued to their customers and is waiting to receive payment.

Instead of waiting the usual 30 - 90 day credit terms before receiving payment, an Invoice Financing facility will allow the company to receive early payment by a financial institution, before the payment due date. The financial institution will then either collect repayment directly from the company’s customer after 30 - 90 days or from the company itself.

Invoice Financing is also known by other names such as Account Receivables Financing (ARP), Factoring, Invoice Factoring or Invoice Discounting with minor differences between them.

Common terms associated with this facility

  • Recourse or non-recourse

    • If their customers fail to pay for the invoice, the company will held responsible for the loss and is then responsible for repaying the financial institution.

  • Notified or non-notified

    • Their customers are informed by the financial institution that they are now required to pay directly to the financial institution instead of the company for future invoices.

  • Verification of invoices

    • Invoices submitted by the company for financing may be subjected to checks by the financial institution.

Common fees associated with this facility

  • Facility Fee/Admin Fee

    • Charged at the start. Typically 1 - 2% of the entire line of credit.

  • Annual Renewal Fee

    • To extend the invoice financing facility for another year

  • Factoring Charge

    • Cost for processing the invoices that have been submitted. Typically 1 - 2% of total value of invoices submitted along with a monthly minimum amount of $500.

  • Interest Charge

    • Interest charged on the amount of financing that have been extended by the financial institution, calculated on a daily basis. Typically 8 - 15% annually.

Although the structure may seem complicated at first, but this facility is often credited as one of the most effective ways for a small business to expand rapidly.

One of the key problems for small businesses is that they are often unable to manage their cash-flow efficiently when they are expanding. The more projects they do, the more money is “stuck” in payment terms, and thus they are unable to take on new projects due to the inability to pay for new workers and equipment, until they receive their payment maybe 60 - 90 days later.

This invoice financing facility allows a company to receive payment almost immediately, allowing them to convert these extra cash-flow into new projects, boosting their revenue.



  • A line of credit unlocked by invoices

  • Typically receive 80% of an invoice’s value

  • e.g. to make use of a $80,000 credit line, a company have to submit $100,000 worth of invoices to “unlock” the facility

  • Pay interest only if you withdraw the unlocked facility amount

  • Other fees like factoring charge, processing and renewal fees apply

  • Requires personal guarantee

Typical Use Case

  • Working capital requirements if company is not eligible for the usual business term loans.

  • To fund workers/employees salary as customers often pay late (30 - 360 days)

4. Purchase Financing

Purchase Financing is a type of facility that acts like a line-of-credit, where usage is only allowed for the purchase of goods/services, proven by an invoice given by a supplier. These funds are usually disbursed directly to the company’s supplier/service provider.

Not to be confused with Invoice Financing.

In a sales cycle, a company often receive invoices for purchasing goods/services and issues invoices for selling goods/services.

A Purchase Financing facility is used to finance the “purchase” arm of this sales cycle, while Invoice Financing is used to finance the “receivables” arm of this sales cycle to receive early payment.

This usage and purpose of obtaining this facility is similar to an Overdraft facility. However, the facility amount are larger and interest rates are usually cheaper compared to an Overdraft facility.

Similarities compared to an Overdraft

  • Used for the purchase of goods

  • For short term needs

  • Only used when there is a requirement

Differences compared to an Overdraft

  • Less flexible usage

    • Funds from Purchase Financing is usually credited directly to your service/goods provider, which are required to be approved by the financial institution

    • Free to use Overdraft for any purpose

Although this product sounds great, in reality there are only a few financial institutions who offers this type of loan and are usually only available for large companies.

To the banks, this is as risky as a Business Term Loan or Overdraft facility because it is given purely on the financial strength of the company. However it is not as profitable as a Business Term Loan that earns regular interest income.

Thus this product very often only makes sense if it is offered as a large facility (>$500,000) and are given to companies that are large (>$5 million revenue) and financially stable.



  • A line of credit unlocked by invoices

  • Typical fees include admin/processing fee, annual renewal fees, interest rates

  • Funds typically disbursed directly to your suppliers/service providers

  • No minimum payment per month.

  • Requires personal guarantees

Typical Use Case

  • For large purchases that a company may not have money upfront to pay for but will be able to sell within a short time to make repayment

  • For the purchase of goods and services when trading companies are not able to obtain Letter of Credit/Trust Receipt (LCTR) facilities

Lendingpot connects your business to over 30 financial institutions in Singapore.

Watch this space!

More business loan types coming soon!