Startup Business
Loans in Singapore
The Definitive Guide
Are you considering sourcing for a startup business loan for your new business in Singapore? Many businesses view the city as their ideal business location in Asia due to its excellent geographical location and well established trade links. However, due to rising business costs, starting a business often requires a significant amount of capital and most startups have to source for a startup business loan to bridge the financial gap.
Building a successful business requires a significant amount of capital and meticulous planning. Even if your company has been around for a while, you could be thinking about sourcing for working capital loans to expand and grow.
In this article, we will explore the several startup business loans available in Singapore and our best tips to help new businesses to secure their startup business loan.
A startup business loan is a type of financing to meet a fledgling company’s business operating costs such as acquiring materials and inventory, paying suppliers, buying and leasing equipment and vehicles, or renting office space and warehouse space.
Most businesses fail due to running out of cash. Therefore, maintaining a healthy cashflow is critical. A startup business loan can help startups to improve cashflow.
After setting up the company, businesses may need a startup business loan to scale up their operations. They may need to hire more employees, spend on marketing and sales in order to take on additional business opportunities.
During the course of business operations, there may be unexpected business expenses that may arise. Having access to standby working capital can help the business to meet these expenses without compromising business growth.
There are many different types of startup business loans available to startups in Singapore. Below are some of the more common types of business loans utilized by business owners to boost working capital and improve cash flow.
Banks are a major source that offers business loans to SMEs. The interest rates and repayment terms offered by banks are generally competitive and affordable. However, most banks require borrowers to have 2 to 3 years of track record and to show sufficient profits to repay the business loan. In addition, banks also require guarantors to show good personal credit repayment history.
Banks are less likely to lend to new startups with a history of low revenue and erratic cash flow as these companies are seen as high-risk by banks. However, with the arrival of digital banks in Singapore SME business loans scene, getting a SME business loan for your startup may be easier than before.
Aside from mainstream banks and financial institutions, there are also alternative financiers offering startup business loans. Some of the alternative lenders include P2P lending platforms and private lenders that offer SME business loans to startups.
They often have more flexible lending criteria and faster approval processes than traditional banks. However, the downside is that these lenders may charge higher interest rates due to the higher risks that they take on.
Invoice finance refers to various invoice-based lending strategies, such as invoice factoring, invoice discounting, and receivables finance. Startups can pledge their invoices to release immediate cash to use for business operations.
Lenders will usually advance 80% of the invoice value up front and businesses can receive funds in 48 hours. After the startup receives their payment from their customers, the lender gets repaid and the loan has ended. This is especially useful for startups who sell to more established corporations on credit terms.
Known as the Enterprise Financing Scheme (ESG) and administered by EnterpriseSG, these government-backed loans come with some requirements such as having at least 30% of the shareholding held by Singapore citizens or PR and sales turnover not exceeding S$500m. EnterpriseSG will share the loan default risk of up to 70% with participating lenders. The purpose of this scheme is to reduce the risk of defaults and encourage lenders to offer business loans to startups and SMEs
The Startup SG Founder program and the Startup SG Tech schemes are government-sponsored initiatives and financial aid for businesses that could be used to launch disruptive, scalable technology ventures. The main aim is to encourage tech entrepreneurship and hasten the creation of innovative businesses with scalable business models.
Equity investment is another source of funding that startups can tap. They include angel investors, venture capital. Investors would receive a predetermined share of the company’s equity in return for financing.
However, it is notoriously difficult to receive an equity investment. Startups need to have a unique selling proposition and differentiate themselves from the competition. It usually takes more than 6 months for investors to conduct their due diligence
If you are considering getting a business loan in Singapore, here are some easy tips to help you improve your chances of approval:
Below are the 2 basic requirements for startups to qualify for a Startup Business Loan SME in Singapore:
• Business registered and operating in Singapore.
• Company has at least 30% local shareholding held by Singapore citizens or PR.
The directors and shareholders of the startup have to act as guarantors for the business loan. Hence bad credit scores such as history of late payments, defaults, negotiated settlements and forced closures will adversely affect your business loan application. Therefore, at the very least, always make payment for the minimum sum to avoid affecting your credit score.
This often occurs if the startup is a sole proprietor or a one-man startup. For ease of convenience, the startup owner may simply use his personal bank account for business use. It is always beneficial for startups to open a corporate bank account for their business operations in order to separate personal and business related deposits and expenses.
It will be difficult for lenders to evaluate the loan application as corporate bank accounts are an important source to determine the creditworthiness of the business.
Keep a proper record of documents such as
• ACRA business profile
• Last 6 months bank statements
• Last 2 years notice of assessment for all directors and guarantors
Consider consulting with a professional business loan consultant like Fynergy Capital to help you navigate the loan application process. An experienced SME business loan consultant should be able to guide you through the entire loan application process, from application to disbursement. They should also know how to spot and mitigate any potential issues that may affect the business loan approvals.
