Financing with SME Loan Singapore in the Midst of Covid-19

SME Loan Singapore

A business loan that is granted only to medium-sized enterprises, which is referred to as a small business loan or as an SME loan. These  small business loans are tailored to the needs of any small or medium-sized business or company in Singapore. 

Various business financing schemes through SME loans can help a small and medium-sized business in Singapore increase their working capital, acquire inventories, equipment, real estate, etc., in order to maintain and expand their business needs and operations. 

Without banks, lenders, and their loans, the economy is monopolized only by those who can afford sufficient capital. Lack of SME business loans will only make the rich even richer and give the less fortunate fewer opportunities to improve their quality of life and the economic development of Singapore as a whole.

Why do You Need an SME Loan during Covid 19?

Small businesses play an important role in Singapore’s trade-dependent economy. Singapore is known to be a leader in GDP and is recognized as a First World country. Against the backdrop of the US-China trade conflict, however, Singapore’s economic numbers have taken a hit in the second quarter of 2019. 

Singapore’s GDP contracted by 3.4% quarter-on-quarter in the second quarter of 2019, the sharpest decline since 2012. Moreover, the complications of the current pandemic have caused SMEs to take a beating and temporarily suspend their operations resulting in retrenchments and further GDP decline.

SMEs are usually the first to experience the credit crunch in Singapore in this unforeseen economic crisis because of their recognized higher credit risk portfolio. 

Due to the continuous deceleration of macro-economy, this could result in banks avoiding giving loans to small businesses. That is why if you are a small or medium-sized business owner struggling to navigate the new normal, you need to oversee your working capital cash flow wisely and prepare your funds hereafter to sustain your business during a pandemic. Keeping in mind new necessities like marketing your business mostly online. 

On top of that, you also have to provide contact-less options to ensure your company staff and clients’ safety. These are just some of the modifications you have to make for your business, and they all cost more money. SME loans or business loans in Singapore will help you attain these and more during the pandemic.

Types of Business Loans in Singapore

  • Unsecured Business Term Loan

Known as the most familiar form of working capital loan, unsecured business term loan is an exceptional way to generate working capital funds in any business and industry. If no collateral or assets, whether private or business, are presented against credit financing, this is called an unsecured business loan. 

The interest rate on an unsecured business term loan is higher than that of a secured loan, as it carries a higher risk by comparison. The interest rate on an unsecured business loan is usually 8-13% per annum., while government financing programs have interest rates of about 7-9% per annum.

  • SME Working Capital Loan

The SME Working Capital Loan Singapore is a business loan used by a company to cover the running costs of operations in Singapore.

To finance an SME that has funding concerns or desire to augment their business, the government has introduced a new business loan called the SME Working Capital Loan, which lends loans of up to SGD 1 million per SME. 

Under this program, the government will apportion 90% of the default risk of a business loan like this with a participating financial institution in order to strengthen providing a business loan to an SME. This will aid companies to pay for reduced interest rates on a business loan. 

Moreover, it does not require a collateral and the maximum attainable loan tenure of the business loan is up to 5 years. Participating banking or financial institutions determine the interest rate on the loan, depending on the applicant’s risk and credit rating. 

On average, this business loan interest rate range around 3.5% to 7.5% effective annual rate.

  • Trade Financing

Trade financing is a business financing scheme in which the seller/exporter is compensated for (or guaranteed payment) the merchandise before delivering them to the buyer/importer. 

However, the buyer/importer would also require some sort of insurance that the merchandise will be received after settling the funds.

 After a buyer has provided a mode of payment to the exporter for finance trading, such as a  letter of credit (a form of payment accepted worldwide for international trade), the exporter can only collect the money after presenting transport documents to confirm that the merchandise has been shipped to the importer. 

Finance trading accommodates buyers with a revolving credit line to pay for the merchandise and safeguards the payment of the shipped merchandise for the seller. Finance trading functions efficiently for both buyers and sellers who do not want their business to decline because of the funding cycle gap. 

In addition, both parties can also use finance trading as a risk aversion tool. Both buyers and sellers would be able to curtail cross-border trade risks as well, through trade-financed banking instruments such as payments through LC (Letter of Credit).

Letters of Credit (LC) can be granted to international suppliers.

  • Factoring / Receivables Financing

An invoice financing product instated by the supplier to guarantee its working capital is usually referred to as receivables financing, in which it utilizes its receivables for financing.

Financiers prefer 80% to 90% of the outstanding invoice value of their clients. Suitable for SMEs serving reputable companies with extensive credit tenures.  

  • Property Financing

Property financing, also known as a Mortgage Loan, can help fund the acquisition of commercial or industrial properties. In addition, SMEs can pledge existing real estate to banks for a business loan, and is among the cheapest forms of financing because of its collateral nature.

  • Equipment Financing

To finance the purchase of tangible fixed assets such as machinery and equipment. Typically structured as a rental purchase or lease.

  • Temporary Bridging Loan

The Temporary Bridging Loan programme is among the government assistance schemes that was launched as part of the Solidarity Budget of Singapore 2020 allocation to provide an eligible small business loan or help SMEs gain better access to funds and to limit the cost of financing in view of the impact of Covid-19. 

Eligible SMEs can inquire about their rates for the Temporary Bridging Loan from 16 participating banking or financial institutions in total. Interest rates could commence at an effective interest rate of 2.5% per year or 1.3% per annum simple interest rate. 

The loan also features maximum funding of up to SGD 5 million, with an interest rate of 5% per annum effective interest rate, and a maximum repayment over 5 years. 

Risk-sharing by the government is at 90%, and options for delaying repayment by up to a year are being considered for the loan. Moreover, borrowers are still responsible for repaying 100% of the loan amount until 30 March 2021.

  • SME Micro Loan

The SME Micro Loan or startup business loan is intended for younger start ups or smaller SMEs seeking microfinance up to a loan amount of SGD 100,000. Startup business loan has since replaced the SME working capital loan with up to 4 years repayment period. Interest rate ranges at 3.2 to 4.7% (Effective 6% to 8.75%).

Which Financial Institution Offers the Lowest Interest Rate?

The effective interest rates are applied to the lump sum borrowed in the form of loans, and this differs for each participating financial institution and depends on your company’s risk assessment. 

Different banks and institutions that finance or provide business loans carry different interest rates. A typical interest rate ranges from simple rates of 3.5% to 7% per year, and an effective interest rate of between 7% and 13%. 

You can use a loan assessment tool to verify your company’s eligibility and compare all of the credit offers and loan options from banks.

Loanable Amount & Repayment Period

  • Banks

There seems to be almost 20 banks and financial institutions that provide loans to small and medium businesses in Singapore. 

As a result, there is no definite answer, as different banks have different credit and risk profiles for bank loans. 

To give an example, the maximum loan amount of the temporary bridging loan is up to SGD 5 million. This amount can be incorporated across several participating financial organizations if your business meets the credit criteria of different bank loan providers. 

Although the familiar banks disclose their maximum loan-to-value ratio, qualifying for their cap is not undemanding. Most bank loan applicants are unlikely to be offered the maximum amount unless the financial and credit conditions are exceptionally stable.

  • Money lenders

If you do not pass the credit check or do not meet other financial qualifications, you can turn to a legal lender for a loan. Interest rates for money lenders range around 5 to 15% per month with administration fees of up to 10%. Because the risk of not repaying the loan is higher and there is no certainty of recompensating, the interest rate of a loan from a licensed money lender is usually higher to offset that.

Qualifications and Requirements for SME Loan 

To be eligible for a business loan, criteria includes:

  • Business registration. The business must be a registered local entity that is physically present and operating in Singapore.
  • Ownership and shareholder percentage. Must have local shareholdings held directly/indirectly by Singaporean(s) or PR of a minimum of 30%.
  • Employer and turnover. The company’s group annual sales turnover should not exceed SGD 100 million, OR their group employment size should not exceed 200 employees.

Banks different requirements when it comes to a loan. Most banks generally favor locally owned companies for SME grants, and as such require companies to have a minimum of 30% local shareholdings. 

Foreign-owned companies will need to have at least a Singapore citizen or Permanent Resident (PR) sharing the ownership to make it through the business loan application process. A minimum revenue of SGD 200,000 and at least a tenure of 1 year to 2 years old is also required.

The SME working capital loan is a good fit for companies that are of a minimum age of 2 years, allowing them to be financed with a working capital loan of a maximum of SGD 1 million that is government assisted.

Alternative Financing Options for Businesses, SMEs

There are other financing options that a business can get as alternatives to grants. Aside from providing an additional option, this can also be used to further improve your finances, even with an SME.

A Credit Line is a service provided by banks and other financial firms in Singapore. It allows a business to withdraw any amount of cash within a set limit, and only pay interest based on the withdrawn amount. This financing option works for covering a gap in cash flow for SMEs, offering fund reserves for urgent situations as well as repayment period that is entirely flexible and personalized.

For small businesses that aren’t eligible whether in revenue or tenure, some Personal Loans can fortunately be used for business purposes. Personal loans are structured similarly as regular installment loans, and base interest rate and eligibility criteria of the loan on your credit score and household income.

Support Measures to Help Businesses Through COVID-19

Many companies in Singapore were not spared by the pandemic, as a number have already gone out of business and there are still a few that are in danger of going under. Luckily, enterprise Singapore has introduced support measures that can assist in small business financing outside of a loan. 

These include:

  • Corporate Income Tax rebate
  • Corporate Income Tax deferment
  • Property Tax rebate
  • Jobs Support Scheme 
  • Foreign Worker Levy Waiver and Rebate
  • No increase in government fees and charges until March 31 2021
  • Enhanced Financial Support


Finding the best SME business loan is not an easy task. Consider contacting us at A1 Credit. With our experience in SME business loans in Singapore, we can help simplify technical jargon and to help you navigate complexity of a loan application and guide you toward the best  loan options to keep your business going. We can help you find out which loan fits your budget and helps you achieve your goals, as it is nevertheless a necessary resource for your company, either to expand or simply to keep afloat. Moreover, our maximum loan amount is up to SGD 200,000 with any personal credit criteria or credit score accepted for eligibility. This makes the process of acquiring a loan faster for our clients, which is reflected on our 4.9 star review rating on Google.

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