How to choose the

best type of loan for

your business in
Singapore?
www.smeguru.sg
 How to choose the best type of loan for your business in Singapore?
Page 1

W
ith so many business loans made available out there
for Singaporeans, it can be a challenging task to find
and choose the best loan type for your business.

The different types of business loans in

Singapore include:

 Unsecured Business Term Loan

 Asset Financing
 Invoice Financing /Receivables Financing
 Trade Financing
 SME Micro Loans
 Equipment Financing
 Property Loan

When it comes to choosing a business loan,

there are certain factors that you should
consider before deciding to obtain the loan.
Knowing when to borrow and the type of
loans to choose is a vital part of business
building.

This article will cover the main factors to

help you choose the best type of loan for
your business in Singapore, be it large or
small.
 How to choose the best type of loan for your business in Singapore?
Page 2

Spotting out your

financing needs
Whether you run a large or small business, a
business requires financing for a variety of
reasons. You can make a better decision
about funding your business when you know
why you need the funds.

Are you in need of financial help to cover

short-term cash flow problems? Is your goal
of obtaining funds to acquire equipment or
inventory? Do you wish to expand your
business over the next five years?

Read on to find out all these answers and to

find out the purpose of the funding before
you can choose the type of loan.
 How to choose the best type of loan for your business in Singapore?
Page 3

Short-term
funding options
If your new business is proliferating or if you
have slow-paying accounts receivable, you
may simply need cash to maintain daily
operations, for instance, rent or utilities.

In this case, you will have to find short-term

funding options that can assist you in getting
through difficult times.

Remember, the interest rate charged for

these loans will be significantly higher. But
you can always compare the interest rates
and fees to settle for the best.

Invoice financing Some P2P/Crowdfunding loans are even

If your business has already issued a notable
amount of invoices for completed work, you
can opt for invoice financing. This type of
business loan allows you to receive a credit
based on invoices that are owed from
customers.
Since you have already delivered your goods
or services, and your business has a
reasonable expectation of being repaid,
invoice financing can be less risky. Also, its
interest rates are usually lower compared to
other short-term loans.
Micro loans
Does your business need cash immediately
to grow? Micro loans, a short-term business
loan can be the right type of loan for you. It
offers funding in smaller amounts (S$5,000 -
S$100,000) and shorter durations than
conventional business loans.
obtainable within one business day.
Moreover, it features higher interest rates
than long-term loans.
Revolving credit
If you anticipate having recurrent needs for
short-term financing over the course of a
year, flexible financing that cuts out the
hassle and delay of the application process
and strict repayment schedule can be your
ideal choice.
A revolving credit agreement will allow you to
draw up to an agreed-upon amount anytime.
It charges interest based on borrowed
amounts, asks for an initiation fee but does
not charge early repayment fees. You don’t
have to undergo additional application
processes each time you draw more funding.
It won’t require collateral either.
 How to choose the best type of loan for your business in Singapore?
Page 4

Long-term
funding options
Short-term funding is not for all companies.
Your company might require long-term
financing to facilitate growth. You will find
plenty of options when it comes to long-term
financing.

Business term loans

There are different forms of business loans.
You can receive a lump-sum payment and
repay this principle along with interest over a
set period of time.

In other cases, you will be asked to provide

collateral, or directors are usually requested
to provide a personal guarantee of
repayment.
You can expect to get more funding from
this type of loan, over a longer duration, with
lower interest rates than short-term loans.
Business term loans can be used for varied
purposes, including business expansion. The
downside is that it offers stricter payment
profiles than other loans. The interest is
charged based on the principal amount, and
cash disbursement is slower.
Asset purchase agreements
Usually, this type of loan offers lower interest
rates than general business loans as the asset
can be used as collateral to secure the loan.
The interest rates will vary depending on the
specific asset.
Equity financing
If your SME is not eligible for business loans,
equity funding can be an option. It allows
your business to sell shares of itself to
investors. It does not require regular interest
payments and provides the greatest
financing amounts. However, equity funding
dilutes the ownership of the business.

If you wish to purchase equipment, inventory,

or real estate, to continue or expand your
operations, asset purchasing financing can
be a great choice. You can obtain funding
tailored to your business's required purchase.
 How to choose the best type of loan for your business in Singapore?
Page 5

Consider the cost

of a loan
It is always wise to consider the loan's costs
and benefits before making any business
decision. Obtaining funding can be crucial for
your business’ future, but it is equally
important to consider the costs of each
financing option.
Try to understand the description of the fees
Remember that lenders usually charge for each loan. It is also vital to know if each fee
interest rates and various fees, including applies to your business. Interest rates
application, success/issuer, and early charged will be determined by the lender,
repayment fees. the borrower, and the type of loan.

Winding-Up
Obtaining a loan to expand your business operations is a fairly common practice. But if you
want your company to operate effectively, it is crucial to ensure that you are familiar with the
business loan options available in Singapore. Only then you can take the right type of business
loans based on the requirements of your business.

Note that the best business loan is the one that not only offers a low-interest rate but suits your
needs as well. Apart from financial institutions, some banks can provide you with business
loans in Singapore.
 How to choose the best type of loan for your business in Singapore?

Read our article online at:

https://blog.smeguru.sg/how-to-choose-the-best-type-of-loan-for-your-business-in-sg

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