Banks Offering Small Business Loans – It is important to consider the cost of financing your business through a loan. As a result, it can be difficult to find and compare all the costs and fees associated with all the loans available to your SME. Here we summarize the available information from major banks and alternative lenders (P2P/Crowdfunding platforms) to outline the differences between the fees associated with business loans in Singapore.
The average interest rate for a business loan can range from 4% to 20%, depending on the term and nature of the loan. Long-term and special-use loans typically charge lower interest rates than short-term and general business loans because they offer long-term returns and lower risk, respectively. The fees associated with business loans vary from 1 – 5% of the total loan amount.
Banks Offering Small Business Loans
Banks are the largest source of business loans. They are also very experienced in providing loans to small businesses. In general, banks offer business loans with longer terms, lower interest rates and lower fees. However, they also have slower cash payouts, lower maximum loan amounts and stricter eligibility requirements compared to alternative lenders. Bank business loans are ideal for established SMEs, who meet eligibility requirements and prefer to avoid fees and paying high interest rates.
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Banks charge an average of around 4-10% interest on business loans. These tend to be lower than alternative loans because banks are selective in their application processes. Often they require the business to have a minimum 2 – 3 years operating history and a minimum revenue of S$500,000 – S$1 million. That is why banks lend to the financially soundest and least risky SMEs and thereby offer the lowest interest rates. Compared to banks, P2P/Crowdfunding usually charges higher interest rates (9 – 20%), because they do not provide loans exclusively to experienced and financially sound companies. SMEs that qualify for bank financing can save on interest rates with business loans from banks compared to P2P/Crowdfunding platforms.
Banks usually charge an application fee and, in some cases, an early settlement fee for business loans. The application fee charged is usually S$500 – S$1,000 or 1 – 2% of the approved loan amount. These fees tend to be slightly lower than P2P/Crowdfunding platforms (2 – 5%), although it is important to make case-by-case comparisons as the ranges do not vary much.
Banks tend to offer business loans of up to S$300,000 – S$550,000 for up to 3 – 5 years. These loans tend to have a fixed repayment schedule and therefore offer less flexibility and customization than P2P/crowdfunding loans. SMEs requiring more than S$550,000 should consider applying for P2P/Crowdfunding business loans.
P2P/Crowdfunding offers SMEs access to funding raised by a group of individual investors. This process bypasses bank eligibility requirements and provides access to finance to SMEs that may otherwise not be eligible for bank loans. Additionally, these loans tend to pay out cash much faster than banks (some in as little as 1 – 3 business days). When considering the best sources of financing, P2P/Crowdfunding business loans can be a good option for SMEs that need a large, customizable loan or that do not qualify for a bank loan.
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P2P/Crowdfunding platforms tend to charge higher interest rates (9 – 20%) than banks (4 – 10%). Since P2P/Crowdfunding platforms have lower eligibility standards, they are exposed to higher risks and therefore charge higher interest rates. For SMEs that do not qualify for bank loans, the cost of higher interest rates can be an unfavorable reality for financing their companies through P2P/Crowdfunding business loans.
P2P/Crowdfunding platforms charge success fees, which are important to consider when applying for funding. Usually, these platforms charge a success fee ranging from 2 to 5% of the loan amount. In addition, some platforms charge an application fee or early settlement fee. These fees are higher than bank loan fees but should be evaluated on a case-by-case basis as they do not vary too much.
P2P/Crowdfunding platforms offer larger maximum business term loan amounts compared to banks. MoolahSense offers loans of more than S$5 million. However, these platforms usually offer shorter maximum loan durations (1 – 3 years) than banks (3 – 5 years). SMEs that require a significant loan amount and expect to be able to repay this large loan within 1 – 3 years may be suitable for crowdfunded loans.
Stephen Lee is a Senior Research Analyst at , specializing in insurance. He holds a Bachelor of Arts in International Studies from the University of Washington, and his previous work experience includes risk management and underwriting for professional liability and specialty insurance at Victor Insurance. Additionally, Stephen is a former US Peace Corps Volunteer in Myanmar (served 2018-2020), where he continued to provide business development consulting services to HR firms in Asia Pacific.
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The COVID-19 outbreak has brought a series of circuit breaker measures in hopes of slowing the spread of the pandemic. However, these measures have also dried up the income streams of small and medium enterprises. That said, survival has become a major concern for many SMEs.
Many small and medium-sized businesses are having trouble paying rent, suppliers, staff, and struggling to stay afloat in the midst of an economic downturn. Some SME owners have started diversifying their products to find other income streams. Others took other jobs to bridge the gap during these difficult times.
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Fortunately, a business loan or grant can help. With the help of Enterprise Singapore, the government is offering a special assistance loan package to help SMEs get the funds they need to continue operating. In addition, local banks and financial institutions also offer a variety of loan products.
SME owners can apply for business loans to get the financing they need. There are different types of loans. Various financing products are offered for any business need, such as managing cash flow or paying rent. Other financial products are offered for special needs, such as property or machine/equipment loans.
This is an unsecured business loan, which means no collateral is required, such as property or equipment. This type of loan is popular with SMEs because of its flexibility. You can use it to finance your day-to-day business needs, such as:
In addition, for traditional SME loans, you can choose a repayment term of up to 5 years. You can apply for this type of loan from all major banks, such as DBS, OCBC and UOB.
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When the pandemic hit, the government of Singapore started a government-backed business loan to help SMEs in the country. Led by Enterprise Singapore and participating financial institutions (FIs), they offer attractive affordable loans to SMEs. This type of loan includes government risk sharing of up to 90%.
Working capital loans for small and medium businesses is one of the government assistance business loans offered to local SMEs with a maximum number of employees of 200 people. The Singapore government is working with banks to offer loans of up to $1 million per borrower. The loan term is between 1 and 5 years.
This is another government-backed business loan to help businesses bridge the gap during these difficult times. This type of loan is not only offered to SMEs. It is open to all companies registered in Singapore with at least 30% local ownership. Businesses can borrow up to $5 million and repayment periods are up to 5 years.
Sometimes called “business-first loans,” these are unsecured loans that cater to young startups. Think of it like a mini version of a standard business loan. It offers lower loan amounts of up to $100,000, making it easier for startups to qualify. In addition, with start-up loans, SMEs only need to work for a few months and it is not necessary
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