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What are the different loans available for my small business?

Young female small business owner holding a package and phone behind laptop in Singapore

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If you are reading this article, you might be a small business owner in Singapore who is looking for funding to expand your business or start a new one. Ideally, you should have done a feasibility study to determine if your business can be profitable and earn a good return on investments (ROI).

But most of the time, the banks will not lend money to small businesses because they do not seem to be profitable enough. This is where the non-bank lenders come in. They are more willing to take risks and invest in smaller businesses.

There are many types of loans available for small businesses in Singapore, but here are the top few:

1. Secured Personal Loan

If you have a good credit history and a stable, regular source of income, you can get a secured personal loan from the banks.

This is the same type of loan that you get to buy a car or a house. The bank will ask for collateral in case your business fails and they need to recover their losses. This is why it is important to start your business with enough capital and not over-leverage yourself.

2. Unsecured Personal Loan

If you do not have collateral, you can consider getting an unsecured loan from the banks. This will be based on the banks’ evaluation of your ability to repay, which depends on criteria such as monthly salary, other loan commitments, and credit rating. As assets are not pledged here, interest rates are generally higher than secured personal loans.

This is the same type of loan as credit card loans and student loans.

3. Business Loan

A business loan is a lending agreement between a lender and a business where the former gives money to the business, and the latter pays it back with a set amount of interest across a set timeframe. Business loans can be from banks or non-bank lenders, and can be for many purposes such as expansion plans, operational costs or even recruitment.

However, take note that not all banks and non-bank lenders will lend money for second businesses as they may view it as a riskier investment than the first one. This means that you will probably need to self-finance your business with your savings or through family and friends first before looking for funding from other sources like banks or non-bank lenders.

4. Temporary Bridging Loan

A bridge loan is a type of short-term loan that can be used to maintain your cash flow until you receive more substantial funding from other sources like equity investments, venture capital, or SME loans. The main thing that you should consider when getting a bridge loan is the interest rate because it will have a big impact on your cash flow and profit margins. This means the repayment of the loan will eat up your profit margins and leave you with less money to run and grow your business. Most banks will offer Temporary Bridging Loans with interest rates capped at 5.5% per annum.

5. Invoice Financing

Invoice financing is a type of loan for your small business in Singapore that can be used to finance your inventory. This is a good option if you have a business selling products that are not easy to sell like real estate, cars, or building materials. This type of loan is also good when your customers are slow in paying for the items they purchased. Invoice financing allows you to collect some money from lenders on the spot when customers purchase your products or services instead of waiting for your customers to pay you.

6. Micro-Loan (SME Loan)

You can get an SME loan from the government, banks, or non-bank lenders in Singapore if you have a good business plan with the potential to earn good returns on investments (ROI).

Under the Enterprise Financing Scheme, you can borrow up to $300,000 and it can be used to finance your business’s operating cash flow needs. Do note, however, that group revenue and employee count restrictions apply and at least 30% of local equity must be held directly or indirectly by Singaporeans or PRs.

Else, if you are looking for a business working capital loan that can be used for a range of business needs and are less restrictive than other types of business loans, you can find out more and apply for a business working capital loan at Synergy Credit.

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