Singapore business owners have access to a variety of loan options, from traditional bank loans to government-backed schemes and flexible financing from licensed moneylenders.
Each loan type comes with different terms, interest rates, and eligibility criteria, making it important to choose the best fit for your business needs.
In this blog, we’ll explore the key types of business loans available in Singapore, how interest rates work, and what to consider when comparing loan offers to ensure the right choice for your company’s success.
In Singapore, the typical interest rate for business loans varies between 7% and 11% annually. Unsecured business term loans generally offer rates between 7.5% and 11%, while interest rates for SME business loans are somewhat lower, ranging from 7.5% to 8.8%.
Generally, it is not always straightforward to secure a business loan in Singapore; major banks scrutinize credit scores and operational histories rigorously. However, alternative financing options, like moneylenders, exist, which help startups avoid the struggle of repaying their loans.
Learn more about the different types of loans available, including bank loans, government-assisted programs, and alternative financing from licensed moneylenders.
Types of Business Loans in Singapore
Here, we explore the primary categories of business loans offered, each designed to support various aspects of business growth and stability.
Bank Loans
Bank loans are a common source of funding for businesses, offering a range of products to suit different financial needs. Business term loans are one popular option, typically used for acquiring capital assets or funding significant expansions.
The typical interest rate for business loans varies between 7% and 11% annually. Unsecured business term loans generally offer rates between 7.5% and 11%, while interest rates for SME business loans are somewhat lower, ranging from 7.5% to 8.8%.
These loans are provided with a fixed repayment schedule and are usually secured by collateral, although unsecured business loan options are also available. Interest rates and terms can vary widely based on the borrower’s creditworthiness and the lending institution’s policies.
For shorter-term needs, such as managing cash flow or covering operational expenses during off-peak seasons, short-term financing solutions are available. These include lines of credit and overdraft facilities, which, according to economic expert Adam Hayes and financial journalist Julia Kagan, allow businesses to draw funds up to a specified limit at any time.
Government-Assisted Loans
To support small and medium enterprises (SMEs), the Singapore government collaborates with financial institutions to offer government-backed loans. These loans are designed to provide more accessible financing options for SMEs that might not meet the stringent criteria for traditional bank loans.
One key example is the SME Working Capital Loan, which enables businesses to access unsecured loans of up to S$500,000 to support daily business operations and growth initiatives. This program is particularly helpful for SMEs needing financial assistance without the burden of providing collateral.
Interest Rates: Nominal vs. Effective
The nominal interest rate represents the base cost of borrowing, but it doesn’t account for additional fees or compounding interest. In contrast, the effective interest rate (EIR) provides a complete picture of the loan’s true cost, including fees, charges, and the effects of compounding.
While the nominal rate offers an initial figure, the EIR is crucial for accurately comparing loans, as it reflects the full financial impact, making it the better measure for informed decisions.
Note: These considerations do not apply to loans from moneylenders (ML), which often follow a more simplified fee structure.
Loan Comparison
Selecting the right business loan is crucial as terms, rates, and conditions can significantly affect the total borrowing cost. Below is an overview of business loan offerings from some top banks in Singapore, which will aid in your decision-making process.
| Bank | Interest Rate (p.a.) | Loan Tenure | Loan Amount | Special Features |
| DBS | From 7% | Up to 5 years | Up to S$500,000 | Collateral-free, flexible repayments, fast online processing |
| OCBC | From 8.88% | Up to 4 years | Up to S$200,000 | Tailored SME loans, includes OCBC Business First Loan and SME Working Capital Loan |
| UOB | From 3.75% | Up to 5 years | Up to S$350,000 | No collateral, startup-friendly, rapid funding, offers SME Working Capital Loan |
| Standard Chartered | Up to 9% | Up to 3 years | Up to S$300,000 | Fast approvals, SME-focused, unsecured options |
| Licensed Moneylender | From 5% per month | Up to 2 years | Up to S$200,000 | Faster approvals, less stringent credit requirements |
Note: The above information includes general estimates that may vary. For precise and updated details, consult directly with the respective banks.
The rates listed provide a basic comparison; however, the final rate offered to your business will depend on various factors such as your company’s financial health, credit history, and operational longevity. Banks differ in their eligibility criteria and the flexibility of their repayment options.
For businesses unable to secure traditional bank loans, licensed moneylenders offer an alternative, often at lower rates for small business loan amounts and with a more straightforward application process.
You may also opt for the SME Working Capital Loan, which stands out with a favorable interest rate ranging from 7.5% to 9% p.a., and supports significant borrowing needs. You can secure up to S$500,000, making it suitable for larger financing requirements.
Eligibility Criteria
When applying for a business loan, it’s important to be aware of the eligibility criteria set by lenders. Here are the key requirements typically considered:
- Shareholding Requirements:
- A minimum of 30% of the business’s shares should be held by Singaporean citizens or permanent residents. This ensures local involvement in the business.
- Revenue Requirements:
- Lenders assess the business’s annual revenue to determine its loan repayment capacity. Requirements can vary, with some loans available to businesses generating as little as S$100,000 annually, while others may require more.
- Business Age Requirements:
- Businesses typically need to have been operational for at least two to three years to qualify for most traditional loans. This demonstrates a track record of stability and profitability.
Remember to prepare necessary documentation, which might include financial statements and business plans. Being well-prepared can make the application process smoother and increase your likelihood of success.
Fees and Charges
When considering a business loan, it’s important to factor in not only the interest rates but also various fees and charges that can affect the overall cost. Here’s a breakdown of typical fees and charges you might encounter:
- Processing Fees: Most lenders charge a processing fee for handling the loan application. This fee usually ranges from 1% to 3% of the loan amount. It’s important to note whether this fee is deducted from the loan amount upfront or added to the loan balance, as this can affect your total borrowing cost.
- Annual Fees: Some business loans, especially lines of credit, may have annual fees. These fees are charged for the maintenance and availability of the credit line, regardless of whether you use the full credit amount. Annual fees can vary significantly, so it’s crucial to understand how much you’ll be paying each year.
- Prepayment Penalties: If you decide to pay off your loan early, some lenders may charge a prepayment penalty. This fee compensates the lender for the interest payments they will miss out on. The penalty amount can vary, often calculated as a percentage of the remaining loan balance or a fixed number of months’ interest.
How to Apply
Applying for a business loan can be straightforward if you know the process. Here’s a guide to help you get started.
Banks and Government Loan Programs
Eligibility Requirements:
- Business Registration: Must be registered and actively operating in Singapore.
- Operational History: Typically, the business should be operational for at least 2-3 years; however, some specialized startup loans may allow for a shorter operation period.
- Annual Turnover: Requirements vary, but banks generally look for a solid financial footing, which can mean a higher minimum annual turnover than required by moneylenders.
- Credit History: A good credit history for both the business and its owners is often crucial.
Required Documents:
- Business Registration Documents: Proof of registration in Singapore.
- Financial Statements: Recent financial statements, possibly audited depending on the loan size and type.
- Tax Assessment Notices: Recent tax notices for the company and its directors/partners.
- Bank Statements: Typically, the last six months to one year.
- Business Plan: Required for some loans, particularly for new ventures or major expansions.
- Collateral Documentation: If the loan is secured, details of the collateral may be needed.
Licensed Moneylenders
Eligibility Requirements:
- Business Registration: The company must be registered in Singapore.
- Operational Period: The business should have been operational for at least one year.
- Minimum Turnover: At least SGD $60,000 in annual turnover.
Required Documents:
- NRICs: Of all directors and partners.
- Business Profile: Most recent report from the Accounting & Corporate Regulatory Authority (ACRA).
- Tax Assessment Notices: Latest personal and company notices.
- Financial Statements: Most recent documents.
- Invoices/Contracts: Recent invoices or business contracts that show ongoing business activities.
- Utility Bills: Most recent bills under the company’s name to confirm operational location.
- Bank Statements: Last six months to show current financial activity.
- Asset List: Any assets owned by the company, directors, or partners.
- Tenancy Agreement: If applicable, to demonstrate the business’s physical location.
Application Process:
1. Check Eligibility: Review the specific criteria for the type of loan you’re interested in.
2. Gather Documentation: Assemble all required documents. Having everything ready can expedite the application process.
3. Submit Application: Apply through the lender’s online portal, via email, or in person, depending on the lender’s process.
4. Loan Review: The lender will review the application and documents. This process can take from a few days to several weeks.
5. Approval and Disbursement: If approved, loan terms will be finalized and funds disbursed according to the agreed schedule.
By understanding and preparing for these requirements and processes, you can increase your chances of a successful business loan application, ensuring that you find the right financing solution for your business needs in Singapore.
Final Word
Choosing the right loan option involves comparing different offers. Some banks might offer lower rates if your business is young or if you have a strong credit score. For businesses unable to secure traditional loans, licensed moneylenders offer an alternative where rates start at 5%.
Key Takeaways
- Unsecured business loans often come with interest rates between 7.5% to 11% per year, while licensed moneylenders offer interest rates starting from 5%.
- When choosing a loan, weigh the advantages of banks versus licensed moneylenders. Their differences in flexibility, interest rates, and approval speed could significantly impact your business strategy.
- Licensed moneylenders offer quicker business financing compared to banks. They are also less stringent when it comes to their loan application process.
Looking for a business loan that fits your specific needs? A1 Credit offers swift approvals, flexible repayment plans, and competitive interest rates tailored to your financial situation. Get a no-obligation, free quote today and find the perfect financing solution for your business needs.
