What Is A Business Term Loan?

Written by Shannon Wong on February 8, 2023

If you want to start a business, promote its growth, or are in a cashflow crisis, a business term loan can be a lifesaver.

However, there are vital things to consider before applying for a business term loan in Singapore. Banks will consider the years you have been in business and how much you have made in revenue.

That said, some business loans do not require any collateral. You can also take up to five years to repay the loan. But what is business term loan, really?

Before you take the plunge, there is more to learn about applying for a business loan in Singapore. Read on to see what is the best option for you and how to go about getting a business loan.

Business Loan Options In Singapore

From time to time, small to medium-sized enterprise (SME) business owners will require a business term loan.

There are many reasons why such business loans can be beneficial. One significant fact is that they are flexible. Business term loans can be used to:

  • Increase working capital
  • Hire new staff
  • Improve cashflow
  • Purchase new machinery or equipment
  • Buy property for rentals etc.

If you’re still wondering what is business term loan, you’re right to do so – after all, there are many types of business term loans in Singapore.

Some common ones include:

Startup Business Loan

The business startup loan in Singapore is available to an SME with limited or no financial history. However, the loan cap amount may be up to $100,000.

Standard Business Loan

A standard business loan is a good option for businesses that need working capital.

You can use it to finance day-to-day operations such as inventory purchases, payroll, etc. Since this is an unsecured business loan, you don’t need to pledge an asset as collateral.

Besides, it is flexible as you can repay your loan for up to five years. Banks such as United Overseas Bank, DBS Bank, and OCBC Bank offer standard business loans, though each may have different requirements before approval.

SME Working Capital Loan

This government-assisted business loan is offered to local SMEs with a maximum of 200 employees. It’s available to SMEs and Singapore -registered companies with no less than 30% of the local shareholding. You can get up to $ 1 million with a repayment period of up to five years.

You should be able to enjoy good interest rates on the abovementioned small business loans if you have a good credit score.

If you can’t qualify for a bank loan, you can try other options such as legal money lenders, crowdfunding, etc.

Compared to banks, licensed money lenders are more lenient. But all licensed money lenders have to follow the guidelines of the Ministry of Law concerning interest rates. They are also much more flexible as you can negotiate repayment options with your money lender.

For any business loan in Singapore, financial institutions or lenders will evaluate a company’s financial history or check credit records.

1AP Capital in Singapore proves to be one of the best licensed money lenders with reasonable terms for your business loan.

Eligibility Criteria For Business Loans

To get an SME loan, you must pass the credit evaluation.

Yet, licensed money lenders have fewer requirements for business loan applications than banks, as we will see.

What Most Licensed Money Lenders Require For Business Term Loan

Most legal money lenders require that:

  • Your company is registered in Singapore
  • Be in operation for at least a year
  • Have annual revenue of $60,000

What Most Banks Consider Before Granting A Business Loan

Your company must:

  • Be incorporated in Singapore
  • Be in operation between six months to two years
  • The shareholding must be at least 30% held by Singaporeans or Singapore permanent residents (PRs)
  • Revenue must be at least $300,000
  • Have at least one guarantor who is a Singaporean or Singapore PR with a minimum income of $30,000 per annum

Fortunately, the Singapore government plays a huge role in supporting SMEs.  One is through risk sharing of the loans, which is between 50-70%.

Any SME opting for a government-backed SME Working Capital Loan has to be incorporated in Singapore, with at least 30% local shareholding. Its annual group revenue must not exceed $100 million, and it must not have more than 200 employees.

Five Possible Reasons Why Your Business Loan Application May Be Rejected

Did you apply for a business term loan in Singapore but weren’t successful?

It could be due to any of these reasons:

Your Business Duration

If you have just started your business, any lender will consider it too young as there will be no financial history to assess your stability to offer a business loan.

At 1AP Capital, we may not require your business to be more than a year old. However, for banks, the requirement varies depending on the institution.

For instance, as United Overseas Bank requires your company to be at least three years old for some loans, while DBS Bank requires an SME to be at least a year old.

Low Cashflow

Insufficient cashflow is a red flag to lenders. It tells them about your business’s financial health. So it would help optimise your cashflow before borrowing any loan.

Bad Credit Records For Business Owners Or Directors

A business owner has to provide a personal guarantee for an unsecured business loan. Your credit score helps lenders assess the risk associated with giving you a loan. Those with a bad history of loan repayments are considered a risk.

Loss Making In the Latest Financial Year

When applying for a business loan, make sure the business loan has made a profit for the last financial year. Losses mean that your SME has a high chance of becoming insolvent. And no one would want to risk associating with a company that is headed for failure.

Multiple Existing Loans

When an SME has too many existing debt obligations, meeting the monthly obligations is difficult. The outcome will be more debt for the business.

However, this may not be an issue if an SME can prove it has had good financial management in prior years.

If you need a small business loan in Singapore, you can consider alternatives such as licensed money lenders, peer-to-peer lenders, mortgage financiers, private lenders, etc.

The best thing about licensed money lenders is that they have to follow the rules and regulations set by the Ministry of Law. In addition, they have fewer legal barriers.

If you find the process of getting a business term loan complex, consider taking a personal loan instead of a business loan.

Business Loans Vs Personal Loans

The main differences between business loans and personal loans are:

DetailsBusiness LoanPersonal Loan
Loan TenureFive yearsSeven years
Loan AmountMaximum of $20 millionMaximum of four times your monthly salary
Business DurationRanges between six months to two yearsNone
Documents RequiredBusiness financial records, ACRA records, etc.Personal income records
Loan Processing TimeTwo weeks plusApproval within a few days

How To Apply

Here is the application process:

For Banks

  1. Go to the preferred SME loan page and submit your application online. Make sure you have all your required documents ready.
  2. The bank assesses the application and contacts your guarantors where applicable.
  3. It comes to a decision.
  4. Get your loan approval and disbursement.
  5. Receive a notification when your funds are ready.

Licensed Money Lenders

  1. Apply online on the lender’s website, along with the necessary documents.
  2. A loan officer will contact you, usually within a day.
  3. Visit the office with the necessary documents for face-to-face verification.
  4. Sign the loan contract and receive your funds.

The documents required by most lenders include the following:

  • Accounting and Corporate Regulatory Authority (ACRA)
  • Notice of Assessment (NOA) of Directors
  • Company financial statements
  • Your business current bank statements
  • Credit Bureau Singapore (CBS) report

Additional documents may be required depending on the lender, the type of business loan you are looking at, and the amount you need.

Fees And Terms

Any business loan is only applicable to Singapore-incorporated companies.

For most banks, the facility fee is 2% of the loan amount. Again, the administration fees are levied from 1-5% of your approved loan amount. However, this may change depending on your lender.

Most local banks need a guarantor, but licensed money lenders often do not.

Do You Require A Business Loan?

Now that you know what is business term loan, you can see that a business loan in Singapore can help you maintain your working capital, improve your cashflow, and boost your profitability.

Whether you require an SME business loan for a startup or established business, 1AP Capital is your best option.

We are a professional and trusted licensed money lender that offers fast business loan approval with flexible terms. Contact us today or apply for a loan now.

Frequently Asked Questions

How Can I Get A Startup Business Loan?

You must submit your application online or in person, and provide relevant documents to get the loan.

Business loans are available from banks, licensed money lenders, peer-to-peer lenders, etc. However, unlike money lenders, most banks may be reluctant to give startup loans.

What Is The Business Loan Interest Rate In Singapore?

Typically, most business loan interest rates for banks range between 7-12% per annum. Licensed money lenders cannot charge more than 4% monthly interest.

What Is The SME Loan Application Processing Time?

Once you provide the required documents for your SME loan, the application may take one to two weeks to be reviewed.

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