Most people set out to start their businesses with excitement, but many of them, even those who plan well and save to start up, often run out of money along the way. Whether it is working capital that you are short of, or you need the money to expand the business and take it to the next level, borrowing is usually part of the game. As individuals, people are often admonished to keep their borrowing low, but this is because most times individuals borrow to consume. Borrowing for the business, otherwise known as business financing, is a common practice for businesses large and small.
Businesses tend to borrow strategically with an aim to grow the business. Most times, the money is used to scale up their operations, to cover costs of operation, or to ensure that they can take advantage of the opportunities presented to them for more business. It is therefore important that business people have a good understanding of the various lending options available to them, in order to use them more effectively.
Most business people take loans for the following five reasons:
Here are three of the most popular business loans taken in Singapore. It is up to you to figure out which loan is most suitable to the needs of your business.
The government enterprise financing scheme has partnered with a variety of lenders in Singapore. This means that one is spoilt for choice on where they can get the financing they need for their business. The list includes the following lenders:
Loan interest rates for business loans vary from one lender to the next depending on the loan product. The EIR range falls between 6.5% and 11%. The eligibility requirements also vary depending on the type of loan one is looking for. Startup loans can be given to businesses that have been operational for the last 6 months, but more typical requirements are as follows:
It is important that one check the eligibility criteria of the loan they are interested in before putting in an application. In addition, shopping around for loans may lead you to better deals than if you settled for the first bank you come across. Due diligence should therefore be done.
A loan application takes between two and three weeks to process. If the case is more complex, it may take even more time than that. This means that you should put in your application well ahead of time. It is also advisable to furnish the bank with all the supporting documents as you submit the application to avoid delays.
In the event that the loan is required urgently, speaking to an SME loan consultant will help with the loan application process. He or she can help you expedite the process because of their experience with loan applications and processes.
It is common knowledge that most SMEs in Singapore prefer to bank with the three local banks, namely DBS, UOB, and OCBC. These three dominate the SME market and are considered safe places to bank. As such, most SMEs tend to take loans from the three. The loan terms tend to be pretty much the same across these three banks with a few differences here and there. An example is the unsecured business term loan.
DBS offers a loan amount of 500k for 5 years. The interest rate on the loan is 10.88% p.a. They do not have a penalty for early repayment and they charge a 2% loan processing fee.
OCBC offers a loan amount of 500k as well for a term of 5 years. The interest rate is the same at 10.88% p.a. and the processing fee is 2%. They charge and early repayment penalty of 3%.
UOB on the other hand offers a maximum loan amount of $350,000 for a term of 4 years. The interest rate remains the same at 10.88% p.a. and the processing fee is 2%. They charge a much higher early repayment penalty of 6.88%.
It is therefore up to the business owner to make shop around and find what works best for him or her.