How a SME Loan Can Empower a Business

 

The SME (small and medium enterprises) are the main focus of the actual economy of Singapore representing almost 99% of all companies and the majority of the local workforce. To grow and maintain the cash flow or to expand many SMEs need external financial support. Here comes the SME loan, these being a financial product offered by banks, financial institutions or supported by the government which supports the businesses with accessible funds. The companies can access different types of loans such as a business loan that can be commercial, guaranteed by the state or through fintech platforms. Choosing the right financing product is crucial to the stability and success of a business.

What Is a SME Loan in Singapore?

A SME loan in Singapore is a form of financing destined for small and middle sized enterprises that need capital to operate, grow or expand. This type of loan helps the companies to cover expenses such as purchasing equipment, paying salaries, renting commercial space or developing new products and services. The loans dedicated for SME are both for start-ups that want to grow and for those who are developing and expanding on the market. These are offered by commercial banks, financial institutions but also through government-backed schemes such as the Enterprise Financing Scheme.

There are two types of SME loans:

  • Secured Loans: these are the loans for SME that require collateral such as assets, goods, property or a personal guarantee. These offer lower interest rates but represent a higher risk for the company in case of non-payment 
  • Unsecured Loans: as the name suggests, these loans for SME do not require collateral but the interest rates might be higher and the amount borrowed smaller

Choosing the right loan for your business depends on a few factors such as the needs of your business, your capacity of repayment and the level of accepted risks. 

General Conditions of Eligibility 

To be able to get a loan for your SME the companies have to fulfill a few general conditions of eligibility imposed by financial institutions or government schemes. First of all the business has to have its be registered in Singapore and carry out economic activities in the country. This is a basic requirement for all types of local financing. Usually, the banks and financial institutions take into account the size of the business you want to make the loan for (usually they want the annual turnover to be under 100 million SGD) or the number of employees (to be under 200).

Based on the development stage of the business a solid financial history for existing companies is required or a realistic and well-structured business plan for start-ups. These documents help lenders assess the company's ability to repay the loan.

Investopedia also gives advice regarding the financial part of starting a small business ‘Entrepreneurs can underestimate the amount of funding needed to start a business. Outlining financial projections shows how money will be generated, where it will come from, and whether it can sustain growth. This provides the basis for budgeting the costs to run a business and get it off the ground. Budgeting includes projecting both expenses and income.’


What Documents Do You Need for a Business Loan?

To apply for a business loan in Singapore it is important to prepare yourself with a complete set of documents which will help the money lenders to evaluate your business’ financial health and its sustainability. One of the essential documents is the financial report of the company which includes the profit and loss (P&L) statement and the balance sheet. This document will show the income, the expenses, the assets and the debts of the company, all of these being essential to prove the capacity of repayment of the loan. 

Also it is necessary an ACRA Bizfile which is basically an official document of the company’s registration issued by the Accounting and Corporate Regulatory Authority (abbreviated ACRA). It provides information about the structure, shareholders and activity of the company. To confirm the real cash flow and the maintenance of the funds you will have to provide recent bank statements usually for the last 6 months. A well structured business plan is something crucial for a start-up business and this will have to include financial projections, clear objectives and growth strategy.

Even though the documents required might vary, these are the essential ones. Other documents might be solicited such as major contracts, licenses or proof of recurring revenue. You have to be careful when it comes to the documents because the preparation of documentation significantly increases the chances of approval.

Hey Sara also mentions ‘BizFile is ACRA’s online platform used for filing and retrieving information. There are more than 300 electronic services offered via BizFile+ like registering a new business, updating particulars of the company if there are any changes, registering a filing agent, or buying business and people profiles. Companies and their authorized representatives can log in using their SingPass to use the portal to perform a range of tasks. Only Singaporeans, PRs, and foreigners with valid work passes can get a SingPass. Foreigners not eligible to get a SingPass would have to engage a filing agent or a company secretary to complete these tasks on their behalf.’

Advantages and Disadvantages 

Here is a short list of advantages and disadvantages when it comes to a loan for your business.

Advantages:

  • Quick access to capital 
  • Government support 
  • Diversity of options 

Disadvantages:

  • Variable interest rates 
  • Possible hidden fees
  • Possible personal guarantor

Conclusion

A business loan in Singapore can be an essential tool for a company’s stability and growth. This offers quick access to capital, supports the operational expansion and helps with the right management of the cash flow. For SMEs the right financing can make a huge difference between stagnation and success but if you want to ensure success, as an entrepreneur you will have to make informed decisions adapted to your business’ needs. In a few words these loans represent flexible financing, government support, competitive interest rates, fast access and development.

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