Many years back, the only way you could start a business was through a loan from the Singapore Bank. In the present day there are multiple options for raising funds for your business like Angel Funding, Peer-to-Peer Financing and more. The problem with Angel Funding is the ownership of your business is given away in return for money, but if you are one of those businesses which is sure to make money within few months of operations and are sure to be self sustaining then there is really no point in giving away your equity stake.
The old school way of raising funds, that is through a bank still is prominent and a very lucrative offer. With a bank loan, you don’t give out equity, but it is treated as a debt where you return the money with some Interest. In most of the cases, you do give a guarantee which is something valuable (Land, Jewellery etc.) to the bank in return for the loan and in case of default they will take over that asset and salvage what they can. This guarantee is call a collateral.
So say you are in Singapore and you don’t want to raise money through a Venture Capitalist and you want to go through the traditional route of a business loan. How do you go about it?
Important Factors for a Loan
Before we go further, I’d like to talk about important components of a loan for some of our readers who aren’t very financially savvy.
When getting a loan, it’s always important to check the Interest rates that you will be charged. So if you take a loan amount of $100 and your loan amount is 10% a month, then month in and month out you need to pay 10% on the loan amount.
Based on your history and past transactions, Banks keep a score of your credit worthiness. This is to measure whether you will be able to pay your loan back or not. If you are likely to default then you will not be eligible for a loan. To make sure you have a good credit score, try to avoid any late payment of any bills or defaulting on your credit card etc.
Collateral is the asset that you give as a guarantee to the bank in case you don’t repay. Many banks ask for a collateral before giving a large loan. So if you have assets then they can form a collateral.
There are various kinds of loans that can be received by a business and we list some of them down. These loans are provided by SPRING and other financial institutions that bear the risk in case of default.
• Micro Loan Program – Spring Singapore
Micro Loans are for businesses that have lesser than 10 employees and the loan amount is up to $100,000. These loans can help a small fledgling startup get off the ground. The eligibility factor is also for companies that have revenues lesser than $1 Million. The Interest rates for a Micro Loan is around the 5.5% bracket which is definitely a reasonable rate for smaller companies.
• Micro Loan – Banks/Private lenders
The second type of loan is for much smaller companies which want loans ranging from$50 to $50,000. Although these loan amounts are much smaller, the Interest rates are dependent on the risk level of each enterprise.
• Working Capital Loan
In the recent Singapore budget there was a provision for a Working Capital Loan which is to help Businesses with lesser than 200 employees to have cash flow that is positive that can benefit their business. The loan is up to $500,000 and the repayment is up to 5 years.
• SME Equipment and Factory Loans
Another type of loan is for capital-intensive industries that involve equipment’s and factories. The loan amount for this goes up to $15 million and the repayment period if up to 8 years for Equipment’s and 10 years for factory loans.
• Personal Loan
Another type of loan is a personal loan. Although this type of loan has a very high rate of Interest at 17.5%. The verification of personal income for availing this loan will be rigorous.
For a smaller business it is easier to get a micro loan and opportunities for flexibility are more. The Business Loans and Personal Loans are much harder to get compared to a micro loan. The requirements for a collateral will be much more.
• Peer to Peer Financing
Crowd lending is a form of debt financing that enable all walks of life to invest directly in local small-medium enterprises (SMEs).
With such a lending portal, it provides a secured platform to match borrowers to investors and facilitate the transactions, SMEs are able to diversify their funding options and obtain flexible debt financing to develop their business.
At the same time, investors are empowered to support local enterprises in Singapore and earn good returns in the form of interest.
Most of these loans have an Eligibility criteria and the most common of them are
•30% of Ownership is by a local
•Registered in Singapore
•Appropriate Team Size
•Appropriate Turn over
The next steps are to
•Consult with a Participating Financial Institution for advice on getting a loan and any other assistance.
•Go to the Financial Institution with the appropriate documents such as
•Business profile from the ACRA
•Audited statements of accounts and certified financial documents
•Income taxes of the owners/directors
•Any other documents as prescribed
•Download the application for the particular loan from the SPRING website and submit it.
•Wait for the application to get processed. It may take more than a fortnight depending on the type of loan and the amount requested and the details provided
•If you have received the loan, then repayment starts a month from the availing of loan.
•Keep your credit score intact by making the repayments on time and not defaulting on your loan.