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Learn: Business Loans

These are some of the most common business loan facilities available for small businesses in Singapore.

bank (1)

Term Loan

money (2)

SME Micro Loan
(Govt-Assisted)

money

SME Working Capital Loan
(Govt-Assisted)

cruise

Bridging Loan for Offshore & Marine

bank (2)

Commercial Property Loan

contract

Factoring & Invoice Financing

car+loader

Equipment & Hire Purchase

credit-card

Overdraft & Purchase Financing

shopping-cart

Trade Credit

payment

Merchant Cash Advance

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Term Loan

A Term Loan is the original bank loan, that works the way you think it works.

It is the most common loan product, available in almost every single bank, financial institute or FinTech in Singapore. You are given a fixed amount of money, received upfront at the start of your loan term.

You will then be required to pay off a fixed sum of money monthly (loan repayment) for a fixed amount of time (term) at an indicated interest rate (APR) including fees.

Interest is calculated on a reducing balance basis.

Maximum Loan Amount

S$20,000 – S$500,000

Term

1 – 5 years

Interest Rates

From 8.88%

Speed

2 – 3 weeks

SME Micro Loan

The SME Micro Loan works like a Term Loan but with limits on its quantum (loan amount) and tenor (loan duration).

The Singapore Government, who co-shares 50% of the risk of this loan scheme, sets these limits. Full terms can be seen at Enterprise Singapore (ESG). This is the loan scheme that the Government implemented to help SME business owners have access to cheaper funding in Singapore.

However, Enterprise Singapore itself does not advance these loans, only Banks or Financial Institutions who are registered with them are able to.

This means that you don’t apply to ESG for loans, but rather, contact ESG’s partners for loans!

Maximum Loan Amount

S$10,000 – S$100,000

Term

1 – 4 years

Interest Rates

From 6.25%

Speed

2 – 3 weeks

SME Working Capital Loan

This is another Government loan scheme, introduced on 1st June 2016 as part of the Budget that year. The government have allocated S$2 billion to this scheme, co-sharing 50% of the risk with lenders as well.  It is likely to be available till 2019 or until the depletion of the S$2 billion allocation.

Full terms are similar to SME Micro Loans except that it is also available to SMEs with annual sales > S$1million & with >10 employees. 

SME Working Capital Loan & SME Micro Loan are not mutually exclusive, which means that you can have both at the same time. Make sure to use both Government-backed loans in order to maximize your benefits!

Maximum Loan Amount

S$10,000 – S$300,000

Term

1 – 5 years

Interest Rates

From 6.25%

Speed

2 – 3 weeks

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Bridging Loan for Marine & Offshore Engineering Companies

Launched with the intention to rescue Singapore’s fledgeling maritime businesses at a time of intense business uncertainty, companies are encouraged to use this loan to bridge short-term working capital working requirements.

The terms of this bridging loan allow companies to only service interest for a number of years to reduce the cash flow needed for such a large loan. Maximum loan amount also differs, up to S$5 million per company or up to S$15 million per group.

Once again, the application is only accepted through participating banks & financial institutions, subjected to banking requirements  & the Government-Set eligibility system.

Maximum Loan Amount

Up to S$5 million (per company)

Term

1 – 6 years

Interest Rates

From 8%

Speed

2 – 4 weeks

Equipment Loan or Hire-Purchase

Vehicles, machinery or equipment are all considered as equipment hire-purchase as long as it’s for commercial use. 

Valuation differs between new and used equipment but, unfortunately, also between financing companies. Some may place a higher value on certain types of equipment as they may be experts in the handling, disposal or the extraction of value from these machineries.

Due to the specialized nature of equipment loans, only selected finance companies/banks are actively involved in this category of loans.

Maximum Loan Amount

50% – 100% of equipment value

Term

1 – 5 years (7 years for new vehicles)

Interest Rates

From 4.5%

Speed

1 hour (approval) – 2 weeks(disbursement)

Factoring or Invoice Financing

This category of loan involves using your invoices to your customers as collateral for a loan. It works like this:

1. Your business (the Client, i.e. the seller) sells goods regularly to another business (customer, i.e. the buyer). However, the payment terms allow your customer to settle payment 30 – 90 days later.

2. At this point, an invoice factoring company buys over your invoice, pays you a percentage of the invoice amount (70 – 90%), and collects payment from your customer (the buyer) on the invoice due date. The invoice factoring company takes a percentage of the invoice amount as their fee.

3. You benefit by receiving the money early (albeit at a discount) without having to worry about late payment. The factoring company will also take over debt collection for you. 

The mechanics of interest payment & fees in invoice factoring is highly complex. A complete guide will be published in due time. Watch this space.

Maximum Loan Amount

60 – 85% of invoice value (industry-based)

Term

60 – 120 days after invoice due date

Interest Rates

From 6%

Speed

3 – 6 weeks

Overdraft or Purchase Financing

Purchase Financing (PF) is the twin & other half of invoice financing.

Invoice Financing funds you for early payment of jobs completed, paying you on behalf of your customer.
Purchase Financing, on the other hand, funds you for your payment to your suppliers for purchase of material or goods.

Each “withdrawal” request may require you to provide Purchase Order (PO) documents before any release of funds. Certain conditions may also exist, that only allow disbursement of funds directly to your suppliers to prevent any unauthorized usage.

Since repayment of Purchase Financing is more uncertain compared to Invoice Financing (performance risk, longer period before receiving payment etc.), this facility is generally harder to obtain and more expensive. 

Business Overdraft (OD) allows you to finance your business as and when you want. You are not required to provide reasons or documents to justify your usage of the facility, and you can draw from the line when the need arises.

Because of the additional risk and the issuer’s lack of control, the quantum is generally smaller, and it is a lot more expensive than purchase financing.

Purchase Financing & Business Overdraft may exist in the form of a “line of credit”, which is a pre-approved amount of loan that cannot be exceeded.

Maximum Loan Amount

Up to S$200,000 (OD) or S$1 million (PF)

Term

Ongoing, renewable every year

Interest Rates

From 10%

Speed

3 – 5 weeks

Trade Credit

Trade Credit is the collective description of a series of financial products, that helps you import or export goods through international boundaries, which require trust in payment.

The basic products are Import Letter of Credit (LC), Export Letter of Credit (LC), Banker’s Guarantees & Trust Receipts. 

– LCs are required when you are importing and exporting goods through international borders but do not trust the other party regarding payment. The Banks will facilitate this process by paying and receiving payment on behalf of their respective client. To the business owners, trust is established as they are essentially transacting with their own trusted bank.

– Trust Receipts are basically time extensions on the collection of payment. The Banks will allow you to collect the goods first, giving you a period of 30-90 days to sell the goods, before demanding payment.

– Typically, Import LC & Trust Receipt works together. With a Import LC, your bank will pay your supplier, and with a Trust Receipt, the Bank allows you to collect the goods and repay the bank in 30 – 90 days.

– Banker’s Guarantee works like an insurance, insuring against performance risk. Many large government projects require a Banker’s Guarantee. In the event that you are unable to complete the project, your client has the right to claim this Banker’s Guarantee, which pays out under certain conditions, as a cost to find a replacement contractor.

Stay tuned for a more detailed guide on Trade Credit.

Maximum Loan Amount

From S$300,000

Term

Renewed on an annual basis

Interest Rates

From 6.5%

Speed

From 4 weeks onwards

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Merchant Cash Advance

Merchant Cash Advance (MCA) are mainly available only for companies with credit card terminals which are used regularly, such as Restaurants or Retail Businesses.

The MCA loan will involve an escrow account between the lender & you, where you’d pledge a certain % of all future credit card receipts until full repayment of the facility. The lender will advance (loan) you a certain percentage of the past 6-12 months of all credit card receipts.

To secure this facility, the bank account into which credit card payment is credited into will be jointly held by both parties and only after repayment of fixed monthly amount, will the rest of the funds be made available to you for use.

Currently, this type of loan is not widely available and only offered by selected financial institutions due difficulties involved in regulating escrow accounts as well as the comparatively smaller market size of businesses who require this facility.

Maximum Loan Amount

Mostly dependent on 3 or 6 month average of credit card terminal collections

Term

Annual

Interest Rates

From 10%

Speed

Weeks

Commercial Property Loan

Like property purchases, commercial property loans in Singapore are highly regulated with a complex amalgamation of fees, valuation & government taxation.

To simplify things, there are several key conditions that usually shape commercial property loan in Singapore.

  1. New Purchase or Refinancing
  2. Type (Factory, Commercial, Industrial,Shophouse etc.)
  3. Freehold or Leasehold (no. of year left)
  4. Landlord (HDB, URA, JTC, Private etc.)
  5. Property Info (Valuation, Permissable Use etc.)

These conditions will determine the Valuation and that is used for a Loan-to-Valuation (LTV) percentage that is used for the basis of loan quantum, tenure & interests.

Maximum Loan Amount

Up to 90% of Loan-to-Valuation

Term

1 – 25 years

Interest Rates

From 2.6%

Speed

3 weeks – 2 months

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