Business Loan Singapore
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Business Loan Types
Exactly like the old school idea of a bank loan, a term business loan is a sum of money that is lent to a business, which you repay over a span of up to 5 years.
Maximum Loan Amount
$50,000 – $5,000,000
1 – 5 years
4.5 – 6.7% per annum
Invoice financing allows you to raise capital by selling your invoice to a lender, who will advance you up to 90% of your invoice amount, and hold on to the remainder until the invoice is paid.
Maximum Loan Amount
Up to 90% of invoice value
30 – 120 days
8 – 12% per annum
As little as 1 week
Startup Business Loan
Personal loans can be a great alternative to a business loan, especially if you are starting a new business. Personal loans can often have lower interest rates than business loans as well.
Maximum Loan Amount
Up to $1,000,000
1 – 5 years
4.98 – 6.88% per annum
As little as 1 week
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Business Loan Singapore
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How to Find and Qualify for the Best Business Loan?
With so many loan products in the market, where do you get started?
Which loan is best for you?
Let the following steps guide you:
What Do You Need a Business Loan for?
One of the most fundamental questions that lenders will ask you when approached for a small business loan is “How much are you looking for?”. While everyone would love to have a nice $5 million, we should always be prudent to think of how much we can afford, not how much we want. If you are unsure of how much you can afford, follow our guidelines below.
What Can You Actually Afford?
1. Calculate Your Debt Service Ratio Coverage
To find out how much business loan payments your business can afford monthly, take a few moments to calculate your debt service coverage ratio. This is the figure that the banks use to determine if you have enough cash flow to meet monthly repayments. This is also the number that YOU should use to make sure your business is comfortable with monthly repayments. To calculate your debt service coverage ratio, follow this simple formula:
Cash Flow / Loan Payment = Debt Service Coverage Ratio (DCSR)
To apply the formula, use either monthly or annual figures. See how the calculation works.
First, calculate your average cash flow (sales – expenditure = cash flow). How much revenue comes into your business each month? Suppose that your business brings in $10,000 worth of sales each month. How much do you think your monthly business loan repayment will be? Let’s take it to be $2,000. This would mean that you have a debt service coverage ratio of 5, which is very acceptable and affordable!
Most financiers require for your DSCR to be at least 1. If your DSCR is below 1, it is likely that your business is not generating sufficient cash flow to maintain monthly loan repayments. In some cases, lenders even require for your DSCR to be at least 2. It is always good practice to use this ratio for your own reference too.
How much is your business comfortable with? If it is 2, take your average monthly cash flow and divide it by 2. With this amount, go for a loan that will allow your monthly repayments to be equivalent to that amount.
2. Business Loan Performance Analysis
Always remember that the reason for for getting a business loan is to invest in your business. When you get a business loan, you need to be sure that this investment will bring you profit. Are you confident that this loan will grow your business? If you are unsure, do a loan yield analysis. By conducting a yield analysis, you will see how business loans can influence your company. It will also help you to properly determine the appropriate amount to borrow.
3. Plan Your Ideal Loan Payment
Having seen how business loans can influence your business, and with the knowledge to calculate your debt coverage ratio, decide on a monthly repayment amount that you are comfortable with. Retain this figure in your memory as you apply for your loan.
How to Qualify for a Business Loan in Singapore
Your personal credit grading is one of the most crucial aspect of a business loan application. Lenders take a serious view on the credibility of the business owner, wanting to know that they are lending to a good paymaster. With a healthy credit grading, securing a business loan becomes a lot easier.
A good way to accelerate the business loan process before applications is to pull your own credit bureau report to see your personal credit score. This can be obtained at creditbureau.com.sg for a small cost of S$6. By knowing your own credit grading, you will have a clearer perspective of what to expect.
How Your Credit Bureau Report Affects Business Loans
When you download your credit bureau report, the first thing to do is always to check for errors. There is always a possibility of your report containing things that are incorrect that are affecting your grading. To name a few things:
- Inaccurate late payments or credit facilities
- Payments that were already made but are still shown as an outstanding balance
- Recorded payments that you are unaware of
To correct such errors, you must first be sure that the reflected information is inaccurate. If it is a matter of credit payment, you should call the creditor and ask them to let their respective banks know that you have made full payment. If it is a debt that you are not aware of, call the banks to verify who the credit is due to. For other issues, you should contact the credit bureau directly. If needed, write a letter in to dispute the matter, supported with relevant documents as proof. Credit bureaus have an obligation to provide clarity on such issues and usually take about 3 to 4 weeks to get back to you.
What if you can’t find any errors in your credit report? Look through the report, pay attention to your repayment patterns, and try to look out for areas of credit payments that you can improve on.
As we have established, repayment patterns have the biggest influence on your credit score. Paying your bills on time is the best way of ensuring a good credit score.
If you are wondering about what exactly a good credit score is, the answer is dependent on the type of loan that you want. For a business loan in Singapore, it is essential for the director to have a credit grading of at least “AA to CC”. For a personal loan, some lenders are willing to accommodate up to a grading of “HH”. If you are confident that you can take measured steps to improve your credit score, it may be wise to do so over a span of a few months.
Follow these steps to improve your credit score in the shortest possible time.
How to Apply for a Business Loan
You cannot simply walk into a local banks’ branch and try to apply for a business loan anymore. There is a wide range of business loan products offered online, by private financiers, P2P/Crowdfunded financiers and local banks. Here are some steps you can follow to understand the loans better and get prepared for the application process.
What Documents Do You Need to Prepare?
You will have noticed that the documents required differs for every loan product, and some of them can take some time to prepare. Usually the lower-cost loan products will demand more financial documentation. Although every lender/financier will have different requirements for application, listed below is the standard set of financial documents you will need to prepare beforehand.
Corporate Bank Account Statements
Personal Tax Bill / Notice of Assessment (NOA)
List of Current Banking Facilities
During a small business loan application, the FI might request for a list of current banking facilities, or a list of existing loans of the company. Usually this list would include your current existing loans towards other FIs, as well as the repayment terms. This is used along with the other financial documents to judge the risk of default on the loan.
Profit and Loss Statements
As mentioned above, you will need to provide your company’s past 2 years’ P&Ls along with your Balance Sheets. This is used to review the company’s cash flow and projected income, and if there is any risk that the company will default on the loan.
To judge a company’s current financial status, most FIs will request for your company’s up-to-date Balance Sheets together with your Profit and Loss statements as well. Usually the past 2 years’ Balance Sheets are requested, along with an additional up-to-date Balance Sheet if needed.
Understand Your Business Loan Offer
You will find that it can be difficult to compare various business loan products, because the rates are marketed to seem favourable, with simple interest rates. Simple interest rates do not equal to the total cost of the loan, so which number should you be looking for?
Enquire About the EIR
EIR is an acronym for Effective Interest Rate. The EIR of a loan represents the true cost of the loan and is it different from the advertised simple interest rates. It is calculated by taking into account various factors such as admin/processing fees and repayment tenures. All Financial Institutions are required to display the EIR along with the advertised rates, all you need to do is look into the fine print or simply ask them to find out.
Know What Fees to Watch Out for
Although EIR gives you an accurate cost of the business loan product, perhaps you are still curious as to what fees can be incurred when obtaining the loan.
Processing / Application Fee
During the approval process of a business loan, FIs have to incur costs to run credit and background checks on you and your company. Some banks or private financiers will charge for these expenses incurred during application reviews and processing.
Banks might charge your business an annual fee, usually for maintaining of trade or credit facilities.
Early repayment penalty
When you decide to redeem the loan earlier than the loan tenure, banks might charge an early repayment penalty, usually between 2-4%. This is for the banks to recoup their interest losses that would have been charged during the entire loan tenure. Before you decide to make an early repayment, you should enquire about the exact penalty fee and calculate if it will cost you more than the interest you will incur for the rest of the loan tenure.
Late Repayment Fee
Nothing unusual here, as most would already know, there are penalty fees for late payments with most lenders. If you haven’t already put your payments to GIRO, you have to make sure that you have a solid system in place to help you remember.
Choosing your Business Loan
Small business loans can have pretty extensive applications – depending on the loan product you are applying for. Generally speaking, the lower the cost of the loan and the longer the term of the loan, the more paperwork that will be involved. But, no one lender is alike and each will have their own set of requirements. Here’s an idea of some of the most popular documents needed for small business loan applications. Keep in mind — this is only a portion of what many lenders will ask for!
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