According to one report of the World Bank, did you know that 70% of the world’s businesses, including Singapore, are based on SME loans? SME loans are one of the most important terms to be considered in any developed, developing and economic situation.
Of course, not everyone has a large amount of money or enough funds to start their new business. This issue can affect the GDP, employment rate, TAX returns and many other economic situations of Singapore. That’s why SME financing is used to provide small business loans singapore to start-ups.
For your ease, in this article, we’ve written an ultimate article on everything you need to know about SME loans in Singapore.
Continue Reading the article:
What is an SME Loan?
Before getting into the depth of SME financing or SME loan (both are the same), let’s look at what SME financing is in Singapore.
As the name suggests, a Small Medium Enterprise loan (SME) is specified for only small to medium scale enterprises or businesses. It works just like a regular personal loan. However, some policies are different in SME loan singapore than personal or regular business loans.
The main purpose of this loan is to fund the small start-ups to build their business, or ironically, it helps to build your business empire. Banks and governments provide these loans, not for profit purposes. Instead, the main intention of SME financing is to let the businesses run their start-up and help the country’s economic situation.
Government and private banks are the two sources of getting SME loans for business start-ups
in Singapore. However, government-funded SMEs is a bit difficult as their criteria are extremely high. Therefore, most business owners prefer to go with private SME loans in Singapore (we’ll talk about this later in the article).
Types of SME loan
There are different types of SME financing that a bank can offer you. Note that the bank is the one that will decide what type of SME loan you need. You can’t just pick one of your choices as you’re in a shopping mall.
Below are the types of SME loans in Singapore:
Small-scale Business Project
If you plan to start a small business, the bank will most probably assign you an SBP type of SME loan. This type of loan is specifically for small businesses. Therefore, their loan amount is lower than the a large-scale business, and the turnaround time is shorter but manageable. Note that the bank will decide how much loan amount they can offer you, and both parties will discuss the loan payback time and intervals.
In most cases, the loan amount is counted by the average GDP per capita and the average amount required to start a small-scale business of the same niche as your niche in that country. In Singapore, the bank might offer you the loan amount, which will range between 600,000$-1.2$ million.
Medium-scale Business Project
This loan is, particularly for medium-scale businesses. A medium scale business project is recognized by the number of employees who’ll work in that company, investment amount, and profit outcome in a given amount of time. But how much? The criteria or number is calculated by the market and might change from time to time.
If we write according to the statistics of Singapore, the bank will offer you a loan ranging from 1.8$ million-5.7$ million. Moreover, the turnaround time in medium-scale business loans is also extended, and the interest rate is also lower in medium scale businesses compared to small-scale ones.
Emergency Business Loan
There might be a time when your business can experience challenges due to the unavailability of funds which eventually can ruin your business. At that time, you need fundings to save your business. Moreover, a government doesn’t want any legal and trusted businesses to shut down because businesses pay taxes to the government, improve the country’s GDP per capita, and it’s a source of income for many families.
That’s why in SME financing, EBL (Emergency Business Loan) is offered to business owners. It allows the business owners to fund their business and save their business from collapsing. The bank will analyze your business and decide how much loan you need to fund your business.
This type of loan is available for any small-scale to large-scale business!
When Should you use an SME loan?
Taking loans for your business isn’t a wise decision. Taking a loan from banks is always a loss option. However, still, 90% of businesses are running on loans, especially SME loans. It’s because not every business owner can arrange money for their business instantly. Therefore, they either sell their business shares or keep them with themselves and go for a loan.
However, below we’ve mentioned some tips which will help you when you should go with an SME loan:
Distributing shares of your business might not be a profitable idea. Of course, you create your business; you do everything. Still, you’ll pay % of your profit to some people who’ve funded your business.
However, distributing shares is still a safe game. It’s because the investor will also face loss and profit with you in the business. However, if you have a good business idea and are sure that your business will return a profit, you can go ahead with an SME loan.
Once you clear up the loan, the business will be yours, and no one will ask you for the profit % from your total profit. Hence, you’ll get the funds, but the whole business will stay with you.
However, note that, unlike investments and shares, you’ll need to repay the loan whether your business gets in profit or the loss.
Credit score also plays an important role in getting an SME loan for your business. Since you’re borrowing a huge loan, do you think that bank will offer it instantly?
Bank will analyze all your history and then determine whether they should give you the loan or not. This whole analysis is called a credit score. It depends on some factors like:
- Total amount owed
- Payment history
- Length of credit history
- New credit
- Types of credit
The score is measured in units. If the credit score with your bank is above 700, then you have a very good chance that the bank will easily give your SME loan with the lowest interest rate. If your credit score is below 600, borrowing a loan from a bank might not be an easy challenge. The bank will proceed with a strict background check on you, and in case if you get a loan, the interest will be very high since you’re a risk for the bank. If your credit score is lower than 500, then there’s no chance the bank is giving you an SME loan.
Do you think the bank is going to lend you millions of dollars without any checking? Every bank will proceed with a very strict and deep background check before lending you an SME loan. No bank wants to risk their money to an unknown person. They’ll perform a detailed security background check which includes almost anything in your life.
It includes your criminal record, relationships with your friends and business partners and employees, source of income, property check, family members and relatives check, tax details, medical record, liabilities and assets you own and many other things. After all these things, the bank will decide whether they should give you the SME loan or not. Therefore, if you’re not comfortable with this detailed inspection, you might leave this start-up loan (SME loan) thing.
Note that small business loans don’t work like that, unlike a personal loan where you’ll ask your bank how much money you need. In SME, the bank is the one which will offer you how much money they can lend you and not you.
You’ll give them your business proposal; they’ll analyze, do a deep inspection and research the market of other businesses working on your niche. Then the bank will offer you how much money they can provide to you. Their offering will depend on the average amount required to start a business like you. It’s not like you go to the bank and ask them your custom amount.
The bank will never lend you any loan for SME or start up loans if you don’t own the where you
are leaving. Yes, to get the SME loan, you must own the business where you’re currently living. Banks will always reject applications in which the applicant doesn’t own the business property. Because you can leave rented property anytime you want, but in owned property, you can’t leave, nor can you sell it until you clear the loan of the bank.
From 2010-2021, 90% of business start-ups were funded by SME loans in Singapore. SME is intended to let the owners set up their business and help Singapore’s economy, open employment, etc. If you don’t know the policies of SMEs or want general information about SMEs, this guide is for you.