How to Get Loans for Your New Business: Loan Options in Singapore
- Vera Lang
- May 23, 2024
- 3 min read
When starting a new business in Singapore, securing the right financing is crucial. In this blog post, we compare the Working Capital Loan under the Enterprise Financing Scheme (EFS) with Unsecured Business Term Loans offered by banks and other lenders. Understanding these loan options will help you determine the best fit for your new business and support your growth from the ground up.
Working Capital Loan (EFS)
Overview:
The Working Capital Loan under the Enterprise Financing Scheme (EFS) is a government-supported financing program designed to help Singapore SMEs meet their operational cash flow needs. It provides essential funding to manage daily operations, cover short-term expenses, and ensure business continuity.
Key Features:
Government-Backed: Risk-sharing component with the government co-sharing risk with participating financial institutions.
Maximum Loan Quantum: Enhanced to S$500,000 from 1 April 2024.
Repayment Period: Typically up to 5 years.
Interest Rates: Generally lower due to government risk-sharing.
Eligibility: Targeted at Singapore SMEs that meet specific criteria set by Enterprise Singapore.
Advantages:
Lower Interest Rates: More affordable for SMEs due to government backing.
Accessibility: Easier for SMEs to qualify.
Support for Operational Needs: Ideal for managing cash flow and daily operations.
Government Support: Additional support measures during economic downturns.
Disadvantages:
Application Process: May involve more paperwork and longer approval times due to government involvement.
Specific Eligibility Criteria: SMEs must meet specific criteria set by Enterprise Singapore.
Unsecured Business Term Loan from Singapore Banks
Overview:
An Unsecured Business Term Loan from Singapore banks provides financing without requiring collateral. These loans are granted based on the creditworthiness and financial health of the business.
Key Features:
No Collateral Required: Businesses can obtain financing without pledging assets.
Loan Quantum: Typically up to S$300,000.
Repayment Period: Usually ranges from 1 to 5 years.
Interest Rates: Higher compared to EFS loans due to higher risk.
Eligibility: Based on the business’s creditworthiness, revenue, and financial stability.
Advantages:
Flexibility: Funds can be used for various business needs.
Quick Access: Streamlined application process for faster access to capital.
No Asset Risk: Businesses do not risk losing assets since no collateral is required.
Simplified Approval: Fewer requirements compared to secured loans.
Disadvantages:
Higher Interest Rates: Reflects the higher risk to the lender.
Stringent Credit Requirements: Higher standards for creditworthiness and financial stability.
Unsecured Business Term Loan by Other Lenders in Singapore
Overview:
Unsecured Business Term Loans from non-bank lenders provide financing without requiring collateral. These loans are often offered by alternative lenders, fintech companies, and other financial institutions.
Key Features:
No Collateral Required: Businesses can obtain financing without pledging assets.
Loan Quantum: Typically up to S$200,000, though it can vary.
Repayment Period: Usually ranges from 1 to 2 years.
Interest Rates: Generally higher than bank loans, reflecting higher risk.
Eligibility: Based on the business’s creditworthiness, revenue, and financial stability, but often more flexible than bank requirements.
Advantages:
Flexibility: Funds can be used for various business needs.
Quick Access: Often faster approval and disbursement times compared to banks.
No Asset Risk: Businesses do not risk losing assets since no collateral is required.
Flexible Criteria: More lenient eligibility requirements, making it accessible to a broader range of businesses.
Disadvantages:
Higher Interest Rates: Reflects the higher risk and convenience.
Higher Monthly Installment: Typically high monthly repayment due to the short tenor of the loans and the higher interest rate.
Smaller Loan Quantum: Generally lower maximum loan amounts compared to bank loans.
Summary of Differences: Loan Options for New Business
Feature | Working Capital Loan (EFS) | Unsecured Business Term Loan from Banks | Unsecured Business Term Loan by Other Lenders |
Collateral | Not required, government-backed risk sharing | Not required | Not required |
Loan Quantum | Up to S$500,000 | Typically up to S$300,000 | Typically up to S$200,000 |
Repayment Period | Up to 5 years | Usually 1 to 5 years | Usually 1 to 2 years |
Interest Rates | Generally lower due to government backing | Higher compared to EFS loans | Generally higher than bank loans |
Eligibility | SMEs meeting Enterprise Singapore criteria | Based on creditworthiness and financial stability | More flexible, varies by lender |
Application Difficulty | Moderate, involves government paperwork | Moderate, standard bank requirements | Easier, faster approval times |
Use of Funds | Primarily for operational cash flow needs | Flexible (expansion, marketing, equipment, etc.) | Flexible (expansion, marketing, equipment, etc.) |
Risk Sharing | Government co-shares risk with financial institutions | Lender assumes full risk | Lender assumes full risk |
Government Support | Yes, including additional support during downturns | No government support | No government support |
By understanding these differences, new business owners can make informed decisions on the most suitable financing solution to support their venture's growth and success.
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