FAQs

In Singapore, it is mandatory for company directors to provide personal guarantee for all unsecured business loans. As you can guess, that would mean that your personal credit score will be a very important part of your small business loan application. Your personal credit score will have a heavy influence in getting the best business loans for you.

While institutional lenders look at the financial strength of your company to determine the loan amount, they look at the personal credit history of the small business owner to determine their chances of getting repayments.

The higher your credit rating, the higher your chances of getting a better business loan.

Before you apply for a small business loan, you can obtain your own credit report to check your credit rating. Your credit report can be purchased for S$6 from creditbureau.com.sg. This way, you get to see exactly what the banks and financial institutions will be looking at.

What kind of credit rating will you need to qualify for an SME business loan? Generally, you will need to have a credit rating of AA, BB or CC. The credit rating system in Singapore allocates a grade to individuals in the range of AA – HH, with AA being the best grade.

If your credit score happens to be below the CC grade, do not be dismayed. Often times, institutional lenders will either request for an additional guarantor to the loan, or collateral to secure the loan.

What to do after getting your credit bureau report?

The first thing to do is to check for mistakes and errors.

There may be errors on your credit report that could possibly affect your credit score. Be sure to check for the following:

Personal credit lines that you have never opened
Outstanding debts that do not belong to you
Payments for a credit facility that you have never used
Debts that you have repaid but are still reflected on the report
Before you attempt to rectify anything, first verify that the information is actually erroneous.

If the mistake has to do with a debt that you have already repaid, then you should contact the lending institution and ask them to inform the credit bureau that you have already satisfied the debt. Or, if the error has to do with an outstanding debt that does not belong to you, be sure to ask the related financial institution to rectify the issue and to update the credit bureau.

As a last resort, you could also contact the credit bureau directly, where they will be obligated to investigate the matter. Once the matter has been resolved, you can purchase your credit report again to check if the errors have been rectified and updated in your report.

However, if you do not find any errors and happen to have a poor credit score, identify the areas that you can improve on and work towards achieving a better credit score.

One of the most important criteria to qualify for business loans is the duration that your business has been operating for.

Why is this important?

From the perspective of a lending institution, the longer that a business has been operating, the more stable the business is. As you know it, starting a business can be risky. A study done by the National University of Singapore on ‘startups in Singapore’, shows that 56.8% of startups are either struggling or simply not generating employment and growth.

The reality is that many new businesses do not survive past their first year. As such, it is not surprising that most lenders are hesitant to work with a new businesses that might not even survive long enough to repay back their small business loans.

Generally, most banks and financial institutions deem a business as reasonably “stable” when it has been in operations for at least 2 years.

Businesses that have been operating in Singapore for at least 2 years will have access to a greater variety of SME loans that offer larger loan amounts at very low interest rates.

However, it does not mean that there are no available business loan options for new business owners. There are many government grants and government assisted SME financing schemes for businesses that have been operating for less than 2 years.

Another key criteria to qualify for small business loans is the annual revenue of your business.

Generally, banks prefer companies that show an annual revenue of S$300,000 and above. They use the annual revenue of a business as a factor for determining the loan amount that you will qualify for. Logically, a lender will not offer a business loan with monthly installments that are larger than your monthly cash flow.

In fact, banks will only offer a loan amount that they are sure you can repay.

Before getting a small business loan for your business, you should assess the financial situation of your business to determine if you really need the additional funds. Do you need a long-term loan or a short-term loan? Determine what you need the financing for.

With a myriad of SME loans in the market, you should consider carefully in order to obtain the best SME loan for your business.

Need working capital for daily operations? An SME Working Capital Loan could help. Need to finance unpaid invoices? Invoice financing could be best business financing solution for your business.

Here are some common reasons to get an SME loan:

• To fund a start up
• To finance the cost daily operations
• To purchase inventory
• To expand your business

Getting the wrong type or SME business loan can have very adverse effects on the finances of your business. For instance, if you chose a short-term loan for a long-term project, it can cause your business to run into unnecessary cash flow problems. It is important that you consider the objectives for getting a business bank loan, and to match the time-span of your project with the term of the loan.

Determine exactly why you need the additional working capital, then start looking for the best SME business loans to meet that need.

Once you have decided to get a small business loan, then comes the part where you decide on a monthly installment amount that you are confident of repaying.

Based on the desired SME loan interest rate and quantum, divide the total sum by the number of months in the tenure to see if it is a sum that your cash flow can comfortably sustain.

Understanding the monthly commitments that your business has taken on is a good step to take in working out the financial position of your company. Having a clear goal of how much funding you require will help in the process of obtaining the business loans you need.

Lenders like to lend money to businesses that have money to pay them back. To assess a business’s ability to pay back an SME business loan Singapore, lenders rely on various factors that articulate the financial strength of a business, such as the debt to equity ratio, financial statements that show revenues and expenses, and cash flow projections.

To ensure that you are sufficiently equipped, it would be wise to tabulate the total loan amount required and the interest rates, in order to know whether your business can sustain the monthly repayments comfortably.

Required documents for assessments may vary from lender to lender. However, these are the few general documents that every financier will almost certainly need to process an application:

• Past bank account statements
• Profit and Loss statements
• Balance sheets
• Income tax returns of Directors
• Identification proof of Directors
• Information on existing debt facilities

We all know that paperwork can cause delays. Therefore, even though all the relevant documents will be requested for during the application, it would help to speed up the process significantly if all the proper documents were already ready.

An important part of the application process is to convince the lender that your business is ready to take on the loan, and that your business is also strong enough to repay it. Having all the relevant documents prepared will help to portray this. More often than not, there will also often be requests for additional documentation. As far as possible, always try to be prompt in providing them.

It is also important to note that for a company to be eligible for business loans in Singapore, there is a requirement for the company to have at least 30% local shareholding. Most banks will request for the Director or a shareholder in the company to provide personal guarantee for the term loan, where the guarantor must be either a Singapore citizen or Singapore PR.

The usual loan application takes about 2 – 3 weeks to get processed to the point of disbursement. However, with more complex cases, the processing time could take up to 1 month.

If you happen to need financing urgently, you could always engage a loan broker. Loan brokers are often able to get applications processed faster, due to the fact that they are familiar with the bankers, requirements and documentation.

Small business loans vary from bank to bank. Each bank will have different interest rates, which can change from time to time. The interest rate of the typical business term loan usually ranges from 3.5% to 6.5% per annum.

Finally, you have arrived to this stage. Kudos on the concerted effort and hard work that you have put into getting this far. By now, you should have received offers for the best business loans in the market. It is now time to decide on the business loan offer that you want to take up.

Just a few questions to ask yourself before you make this decision:

• Can I repay the monthly installments?
• Is this the best offer available with the lowest interest rate?
• Am I aware of all the application and processing fees?

If you have answered a confident “YES” to all the above questions, then go get that business loan.