What Is A Business Term Loan?
November 3, 2022
Do you own a small and medium-sized enterprise (SME) that is struggling to survive? Or perhaps you are a business owner who wants to improve your cashflow with a small business loan in Singapore.
But how do you apply for a business term loan in Singapore? In the first place, what is business term loan?
This article covers the procedures to follow when applying for a business term loan. In addition, we discuss various business loan options and the documents you need to make an application.
Business Loan Options In Singapore
There are several types of business loans in Singapore. Some are general business loans, while others are for specific purposes or business types.
Here are some types of business loans.
Business Term Loan
This is the standard unsecured business loan you can acquire for your business. It has a repayment time of up to five years, and you won’t need to secure it with an asset.
Most banks in Singapore offer this loan.
SME Working Capital Loan
These government-backed small business loans are ideal for local SMEs with no more than 200 employees.
A business can borrow a maximum SME loan of $1 million and repay it within one to five years. However, the loan is only available to SMEs that are registered in Singapore.
In addition, the business should be at least 30% owned by Singaporeans or permanent residents (PRs).
Start-Up Business Loans
Also known as business start-up loans, these are granted to new start-ups that have been in operation from six months to two years.
There are several lenders offering this loan. It is a regular business loan yet accessible business loan with a smaller cap.
There are no strict requirements for application, as your business only needs to be in operation for a few months.
Besides, your company’s financial history doesn’t matter a lot when applying. You can borrow up to $100,000.
To stand a good chance of getting this unsecured loan, you will need a guarantor with a good income and credit report.
In general, most lenders are less likely to place less importance on the financial performance and history of the start-up.
Business Loans Vs Personal Loans
While personal and business loans are similar in several ways, they are also quite different. For instance, business loans attract a lower interest rate than personal loans.
The main reason for this lies in the application process and documents required. Another reason is that personal loans tend to be riskier than business loans.
Therefore, to protect lenders against these risks, there is a need to charge higher interest rates for personal loans.
In general, there is less risk in business loan transactions. Business loans have strict and clear eligibility criteria.
In addition, businesses need to produce the relevant documentation in order to apply for a business term loan. This guarantees lenders that borrowers will pay their loans.
Pros And Cons Of A Business Term Loan
Here are some perks and downsides of a business loan.
- You can usually borrow a higher amount than personal loans.
- Business loans attract lower interest rates than personal loans.
- Your interest repayment is tax-deductible.
- The debt repayment is the business’s obligation, and not an individual’s obligation like a personal loan is.
- You can use it for various purposes, depending on your business needs.
- Business loans are often limited to established businesses, not brand-new companies.
- You need to show that your business is profitable in order to prove you can repay the loan.
Why Your Business Loan Application May Be Rejected
Despite their many advantages, your business loan application in Singapore may be rejected for the following reasons:
Your Business Track Record
Applying for a business loan requires your business to have an excellent track record. Therefore, getting a loan for a brand-new or emerging business can be challenging.
Your business must be registered for at least six months in Singapore to qualify for a business loan.
For companies that meet this requirement yet have unstable annual revenue, business loan lenders may choose to reject their loan applications.
Your Credit Score
To get approved for a business loan in Singapore, you must have good credit score as a business owner. Financial institutions and licensed money lenders will doubt your ability to repay the loan if you have a poor credit score.
Many business loan options in Singapore require your company to be registered in Singapore. Besides, the business should have at least 30% local ownership.
So ensure your business has Singaporean or PR shareholders if you are thinking of applying for a business loan. Otherwise, your application will be rejected.
Where To Get A Business Loan
Many business owners opt for a bank business loan to finance their businesses. Fortunately, many banks offer SME business loans that do not require collateral.
Below are some options* you can opt for.
OCBC Business First Loan
OCBC Bank offers collateral-free business loans that are ideal for start-ups that are between six months to two years old. When applying, you’ll need one Singaporean or PR guarantor aged 21 to 62 years old. The guarantor should also earn at least $30,000 per year.
UOB BizMoney Loan
United Overseas Bank offers SME business loans to solo business owners, private limited companies, and business partners who have been operating for at least three years.
This loan attracts three significant fees: a $500 annual fee, a 2% processing fee, and a 10.88% effective annual interest.
Maybank Business Term Loan
Maybank offers business loans to Singapore businesses that have been operating for at least three years that have at least 30% local ownership.
The business should also have a $300,000 annual turnover. You can get up to $500,000 and take five years to repay the loan.
Standard Chartered Business Instalment Loan
Businesses registered in Singapore can borrow up to $300,000 from Standard Chartered Bank and repay within three years. The loan attracts an 11% interest rate, which can vary.
Your business should be registered in Singapore for at least three years to qualify for this loan. It should also have at least a $750,000 annual turnover and 50% local shareholding.
*Information correct at time of publication
How To Apply
Follow the guide below to apply for a business loan with a bank.
- Fill up and submit your application online. Depending on the lender, you may need to attach your financial documents for the last two years and bank statements for the last three months.
- Let your guarantors know of your loan application. The business loan lenders will email your guarantors for endorsement.
- Track the progress of your business loan application online.
- Review your business loan offer. Upon approval, your financial institution will make you an offer. Review the terms carefully before committing to the offer.
- Wait for the disbursement notification. The financial institution will notify you once it has disbursed the loan.
To apply for a business loan in Singapore, you must qualify for the following requirements.
- Your business should be registered in Singapore.
- Your business should have been in operation for at least three years unless it is a start-up.
- The business should have at least 30% local shareholding.
- The business group sales should be less than $100 million.
- The business group’s employment is limited to 200 employees.
Fees And Repayment Periods
A business loan has several fees and terms, as stated below.
Depending on the type of business loan you opt for, here are common fees you may encounter when applying for a business loan:
- Annual fee: This is charged for business lines of credit.
- Application fee: A standard charge applies.
- Late payment fee: When you don’t pay your business loan on time, you may need to pay a late repayment fee. Some lenders have a fixed rate, while others only charge on the late repayment.
- Non-sufficient funds: If the bank account that you use to provide the lender with automatic repayments of your business loan has insufficient funds, the lender may charge you a non-sufficient funds fee.
- Origination fee: This refers to underwriting to funding costs, and is usually calculated as a percentage of your loan amount, usually 0.5-2%.
- Packaging fee: This fee works the same way as an origination fee. It covers costs that the lender incurs.
The repayment periods for business loans vary depending on the type of loan, as shown below:
- Term loans: 10 years
- Microloan: Six years
- Business lines of credit: Five years
- Equipment financing loan: 10 years
- Invoice financing loan: A few months
Choose The Right Business Term Loan And Lender
GS Credit is a top licensed money lender in Singapore. We provide business loans to SMEs, business partners, and other businesses.
We offer low-interest loans with flexible payments. Besides, applying for our business loan is fast as we process all applications within one hour.
Other reasons why you should consider us are:
- On-the-spot loan disbursement
- Expert and supportive staff
- Competitive rates
You can apply instantly for up to $100,000 with us. When applying, you’ll only need to fill in your name, the reason for the application, loan amount, contact info, and monthly income.