Financing Options
It's important for SMEs to carefully evaluate their financing needs, eligibility criteria, interest rates, repayment terms, and any associated fees before selecting the most suitable financing option for their business.
SME Business Financing Options in Singapore
Enterprise Singapore Working Capital Loan (EFS – WCL)
More information
Enterprise Singapore co-shared risk of default with bank hence banks are more willing to provide working capital loan to company.
Loan size
$30,000 - Up to $500,000 per company
Loan tenure
1-5 years (max)
Loan interest
Per annum (p.a.)
7.0% - 8.25% p.a. (effective rate) or
3.8% - 4.5%p.a. (average interest/year)
Example
Loan of $100,000, tenure 5 years.
Average interest is $3,800/year
Bank’s Processing fee
(one time)
1% - 2% (of the loan amount taken up)
Early Repayment Penalty
No early repayment penalty
Additional requirement
Min 30% local shareholding (PR/Singaporean)
Advantages:
➤ The government shares the risk of default with the bank, which increases the bank's willingness to provide working capital loans to companies.
➤ Interest is lower compared to bank’s in-house loans.
➤ A good financing option to new startups and small businesses with limited track records.
Disadvantages:
➤ Interest begins to accrue once the loan is disbursed.
➤ Non-revolving in nature, meaning that the available funds gradually decrease as repayments are made.
➤ Only a maximum loan amount of $500,000 per company.
Business Term Loan (Unsecured)
Banks in-house loans specifically designed for SMEs, which are collateral-free. This loan is tailored to meet the working capital requirements of SMEs.
Loan size
$20,000 - Up to $1mil
Loan tenure
1-5 years (max)
Loan interest
Per annum (p.a.)
7.75% - 10.88% p.a. (effective rate) or
4.2% - 6.0%p.a. (average interest/year)
Example
Loan of $100,000, tenure 5 years.
Average interest is $4,200/year
Bank’s Processing fee
(one time)
1% - 2% (of loan taken up)
Early Repayment Penalty
1% - 2% (of repaid amount)
Advantages:
➤ Higher loan amounts can be provided based on the specific requirements of the company.
➤ For companies with strong profiles, the interest rate offered is highly competitive.
➤ The loan offers greater flexibility in how it can be used.
Disadvantages:
➤ Interest begins to accrue once the loan is disbursed.
➤ Non revolving in nature, meaning that the available funds gradually decrease as repayments are made.
➤ The requirement for this loan is more stringent as the bank assumes 100% of the default risk.
Business Overdraft / Revolving Short Term Loan (unsecured)
A credit line provides you with access to additional funds when in need.
Credit Limit
$10,000 - $200,000
Interest (effective)
12% - 15% p.a. (daily rest)
Bank’s Processing fee
(one time)
1% - 2% (of loan taken up)
Annual Renewal fee
From $500 - $2,000
Advantages:
➤ The loan is revolving in nature, which means that once the repayments are made, the full credit limit becomes available for further use.
➤ Lower interest costs as you pay interest on the amount overdrawn (used).
➤ Immediate access to funds for unexpected expenses or in emergency.
Disadvantages:
➤ Due to its perceived higher risk, the Business Overdraft typically incurs higher interest costs compared to a Business Term Loan.
➤ Overdrafts are repayable on demand and typically reviewed annually.
➤ Maintaining the account in constant overdraft can result in an unfavourable credit rating as it may signal to the bank that the company is facing cash flow difficulties.
Trade Facility (ESG Trade Loan)
Trade finance is short-term working capital finance to support both local and international trade transactions. It’s used by businesses to finance their trade activities and bridge the funding gap between buying stock and receipt of payment from their customers.
Credit Limit
$350,000-$2mil
Interest (effective)
6% - 8% p.a. (monthly rest)
Credit period
Max 120 days
Bank’s transaction cost
0.125% per transactions (minimum $50)
Loan Insurance fees
0.85% (of limit given)
Annual Renewal fee
From $1,000 - $5,000
Advantages:
➤ Companies can achieve higher trade lines of $1-2 million to engage in trading, thus increasing their revenue and bottom lines.
➤ This financing option offers a lower cost of financing due to its lower interest rate and the absence of interest charges on funds that are not utilized.
➤ By obtaining advance payments from customers for the upcoming trade cycle, companies can achieve operational efficiency.
Disadvantages:
➤ To facilitate payments to your suppliers, you will need to provide various documents as required by the bank.
➤ The line provided has limited flexibility in terms of its usage.
➤ The conduct regarding the use of the trade line and the company's financials will be subject to an annual review by the bank. The bank reserves the right to cancel the trade line at its discretion.
P2P or Crowd Funding
P2P stands for Peer-to-Peer or crowdfunding, whereby a company borrows from a group of individual lenders.
Loan amount
$20,000 - $1mil
Loan Tenure
3-24 months
Interest (simple)
1% - 3% per month
Lender Processing fee
(one time)
3% - 7%
Early Repayment Penalty
No
Advantages:
➤ An alternative to borrowing from a bank for companies with many business loans or for companies without much track record.
➤ Lending criteria are less stringent than banks, and they have the flexibility to “forgive” individuals with poor credit history.
➤ Remarkably fast processing time, with swift approval and disbursement of funds.
Disadvantages:
➤ Short repayment tenure and high interest rate.
➤ In addition to the interest cost, the one-time processing fee can be discouraging for some companies.
➤ Late payment charges and collection tactics can create added pressure for companies.
Property Equity Loan
(Secured based financing)
Basically, you take up a loan on an unencumbered (without mortgage) against commercial or residential property.
Loan amount
Up to 80% of the commercial market value (CMV)
Loan Tenure
Up to 30 years
Loan interest
Per annum (p.a.)
3% - 7%p.a. (effective rate)
Bank’s Processing fee
(one time)
1%-2%
Early Repayment Penalty
1%-2% on prepaid amount
Advantages:
➤ Loan quantum is not tied to your company’s performance.
➤ Lowest interest and long repayment tenure
➤ You can choose between interest payment only or principal and interest payment.
Disadvantages:
➤ The processing time for this loan is longer compared to many other financing options.
➤ In addition to the interest cost, the one-time processing fee can be discouraging for some companies.
➤ In addition to the cost of financing, there may be additional expenses such as legal and valuation report fees.
Alternative Funding
Other financing options include:
➤ Invoice Financing (Supplier or Customer)
➤ Merchant Cash Advance (MCA)
➤ Revenue Share
➤ Leasing and asset finance
➤ Structed Finance (back-to-back transaction)