A Complete Guide about Small Business Loans

Singapore is a whole ecosystem of businesses, whether they are small, medium or businesses expanded all over the world. It is a dynamic centre and everything is well planned so that the entrepreneurs and investors are attracted to this country. SME is the abbreviation from Small and Medium Enterprises and they play a huge role in the country’s economy even though their size is not as huge as their role. But opening a business or maintaining it at the very start might be difficult sometimes because in the first few months, maybe even years you will have to continuously invest in it and the profit might not be the best. But here comes the small business loans to actively help them to grow. 

What Are Small Business Loans?

Small business loans are financial tools that are specially made to help and support the SME to grow and expand. These loans are important for these companies that are at the start of the road because they need additional capital, but do not have sufficient own financial reserves. Therefore, if you opened a small business but you need additional capital and do not have the financial facilities for this, do not give up and instead go for a small business loan. There are different types of loans for SME based on their needs but the most common ones are:

• Invoice Financing: provides immediate liquidity by capitalizing on invoices issued but not yet collected
• Loans for Expansion: provides funds for opening a new working point or to enter the market
• Loans for Equipments: provides fund for investing in quality cars, tools or different technologies
• Loans for Working Capital: used to cover current expenses such as salaries, rent or inventory

These loans can be offered by traditional institutions like banks, by non-bank institutions or FinTech platforms. In Singapore the state supports the SME through different strategies such as an SME loan or Enterprise Financing Scheme. Basically, these businesses have all of the support they need for expansion and growth, whether they choose a scheme from the state or a loan from the bank. 

Experian also mentions ‘Small business loans are designed to help entrepreneurs start, expand or operate their businesses. For example, you might use a business loan to cover operating expenses such as buying inventory, hiring more employees so you can expand, purchasing new equipment or buying a building for your business. You can get small business loans from banks, credit unions, online lenders or community nonprofit organizations. You'll receive a lump sum or line of credit and pay it back over a specified loan term with interest.’

What Is a SME Loan in Singapore?

A SME loan in Singapore is a loan specifically for small or medium sized businesses, SME being the abbreviation for Small and Medium Enterprises. Therefore, the loans made for SME are destined to support the financial needs of a business when it comes to the working capital, expansion, equipment purchase and the well management of the cash flow. The SME plays an important role in the country’s economy, representing more than 90% of all companies and employing approximately 65% of the workforce.

If you are wondering if your business is eligible for a small business loan, here are the criteria that it has to meet so it can be fully eligible for this loan:

• First criteria, an obvious one, your business has to be registered in the country you are applying for the loan in
• Then your business should have an active commercial activity with an annual income that is under a specific amount (for example 100 millions SGD)
• And last but not least, the business needs to have a specific percentage of local ownership and with a simple search on Google you can see that it should be minimum 30%

These loans can be offered by commercial and traditional banks but also by money lenders online and FinTech platforms. Overall, the access to finance in this country is quite easy to encourage the small businesses to grow and expand. 

Bankrate also mentions ‘To take out your first business loan, you first want to research different types of business loans that fit the purpose for your funding. You’ll also want to determine how much funding you need and how much you can afford. You can use a business loan calculator to estimate monthly payments on a loan. Next, you’ll need to research lenders and, if possible, prequalify with several to see what loan, interest rates, fees and terms you qualify for. Then, compare loan options and apply for your preferred business loan.’

How Can You Apply for a Small Business Loan?

To apply for a loan especially made for SME the first step is to choose the right financial institution. You can choose to collaborate with a traditional bank, a FinTech institution or any alternative offered by legal and authorised money lenders. It is essential to compare the available offers based on interest rates, conditions and flexibility.

The next step is to prepare the necessary documents for the application. Usually you will need a financial situation statement of your company such as balance sheets, profit and loss accounts, a clear plan for your business and financial projections for the next 12–24 months and any evidence of repayment history or cash flow.

Conclusion

In conclusion, if you are at the very start with your business and you want to expand it but you do not have the financial facilities for that, this can be solved just as easily with small business loans. The SME loans, as mentioned along the article, play a very important role in a business’ growth and expansion offering the capital needed for expansion, innovation or financial stability. However, with all of the support and help offered by the government and the financial institutions a business owner must think as strategically as possible to be sure that they avoid the financial risks on a long term.