SME Financing: 4 Funding Facilities for Small Businesses

Cash flow is a common challenge faced by Singapore’s small and medium enterprises (SMEs). This problem makes it difficult for SMEs to adapt, innovate and maintain optimal business operations. In this article, you will learn about funding facilities for small businesses.

If you’re a small business owner struggling to improve your cash flow, you can choose from several business loans in Singapore to give you the financial support you need.

funding facilities for small businesses

The best thing about these business loan programs is that they’re intended for various business needs. So, you’ll likely find one that suits your unique situation.

Below are some of the funding facilities for small businesses you can consider:

1. Unsecured Business Loan

Unsecured loans are the most common type of business loans. These are lump-sum loans without collateral, with fixed monthly instalments for three to five years.

The biggest advantage of an unsecured business loan is its flexibility. You can use it for any purpose, whether it’s to fund a piece of new equipment or a new physical store. All majors bank offer this type of loan, including UOB, OCBC and DBS, so you can apply for it at your preferred bank.

However, business loans from banks have certain requirements. They’ll likely ask you how much revenue you make, how long your business has been around and other questions that gauge the credit risk of your enterprise.

2. Government Financing Scheme

Enterprise Singapore offers multiple financing schemes to support local businesses throughout their various stages of growth. Here are some loan programs you can consider:

Temporary Bridging Loan Programme (TBLP)

Enterprise Singapore introduced TBLP in 2020 to help SMEs survive the COVID-19 pandemic. It has a maximum loan amount of $3 million, with interest capped at 5 percent per annum. Similar to the working capital loan, your company should have at least 30 percent local shareholdings and the repayment period is up to five years.

This funding scheme is available only until 30 September 2021.

funding facilities for small businesses

SME Working Capital Loan

This scheme is meant to finance your daily operational cash flow needs, with the maximum loan amount capped at $300,000. It’s available to Singapore-registered SMEs that are owned at least 30 percent by Singaporeans or permanent residents, with less than 200 employees. The loan has a maximum repayment period of five years.

Loan Insurance Scheme (LIS)

The Enhanced LIS helps SMEs obtain short-term trade financing through loan insurance. The Government sponsors part of the insurance premium to help lighten the financial burden of borrowers. You can use LIS to finance your inventory, receivables discounting and pre-working capital facilities.

The requirements for LIS are the same as the two other government-backed financing schemes.

3. Equipment and Machinery Loan

This loan is ideal for businesses that are heavily reliant on equipment and machinery, like the construction and logistics industries. It’s often structured leasing agreements or hire-purchase agreements, similar to car loans.

Equipment loans are secured loans. The machine you buy with the loan is your collateral, which means you can lose that property should you fail to make your repayments. The upside to this loan is that it tends to have lower interest rates since it’s secured.

The financing bank can fund around 70 to 90 percent of the equipment’s purchase price. The loan is repayable between one and five years.

4. Commercial and Industrial Property Loans

Among all the SME financing options, a commercial or industrial property loan offers the lowest interest rate. Lending institutions consider property loans less risky compared to unsecured business loans, hence the lower interest.

Additionally, banks can assess your repayment ability better when they know what you’re using the money for. They typically finance up to 80 percent of the property’s current market valuation or purchase price, whichever is lower.

Sometimes, SME owners with plenty of experience with borrowing loans use their commercial properties as collateral for business financing.

How to Qualify for a Business Loan

Even with the number of business loan options to choose from, applying for any of them can still be difficult. To increase your chances of getting approved, you can look at these three factors:

  • Track record: Most banks will assess your company’s financial reports and annual revenue to gauge your repaying ability. If you’re only just starting out or reporting a net loss, it’ll be challenging to secure a small business loan.
  • Business ownership: If you’re eyeing a government-backed financing scheme, 30 percent of your shareholders must be Singaporeans or permanent residents.
  • Credit score: Your personal credit and the business’s credit score affect your chances of securing a loan. If you have a poor score, the bank may deny you or increase your interest rate.

When applying for a business loan, make sure to keep your options open. Compare potential loans extensively. Consider the terms of the loans according to your business needs and repaying ability. This way, you can get the lowest rates with the most favourable terms.

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