Starting or expanding a business takes a lot of hard work, dedication, planning, patience and, yes, a lot of funding. When grants and awards have run out, or they aren’t an option, business loans are a resource for many companies to keep going. Unlike grants, which do not have to be repaid, loans are borrowed money on which you must pay interest. Lenders charge interest as a type of safety measurement in case the borrower defaults on the loan and does not repay it.
Taking out a loan in the name of a business can be a risky maneuver if the business is failing. While the money may provide the business with enough funding to stay afloat for a while, repaying the business loan may be difficult. A business owner or a business that is deep in debt will have problems trying to secure a loan, and the interest rates will be higher for anyone or any business with a poor credit rating.
Types Of Business Loans
Businesses in Singapore have a few options when applying for a loan as there are several loans available depending on the size of the company and the amount of funding needed.
• Internationalisation Finance (IF) Scheme: IF Schemes are for companies based in Singapore that want to expand overseas as a related business or a company that will provide economic spinoff to Singapore in the form of Research & Development, jobs, etc. Trading companies cannot have a turnover that exceeds S$500 million, while non-trading companies must have a turnover of less than S$300 million. IF Schemes are used to purchase fixed assets that are used overseas; raise capital for secured overseas projects or confirmed overseas orders of sale; and issue a banker’s guarantee for overseas projects that have been secured. Loan terms, interest rates and requirements of collateral are considered by the lending institution.
• Local Enterprise Finance Scheme (LEFS): LEFS are aimed at SMEs, small and medium enterprises, which means the company has less than 200 employees, an annual sales turnover of less than S$100 million and has between 30 percent and 100 percent local shareholding. SMEs can get an LEFS for up to S$15 million to help automate or upgrade factories and equipment, as well as purchase a factory. Factory purchases are for Housing & Development Board (HDB) sites or JTC Corporation properties. Loans that will be repaid within four years have a minimum 4.75 percent interest rate, and those businesses who repay their LEFS in more than four years will pay a minimum interest rate of 5.25 percent.
• Micro Loan Programme: Micro Loans give up to S$100,000 to fund daily business operations or upgrade or automate equipment and factories. The funding is provided as a working capital loan with terms for up to four years (at a minimum of 5.75 percent interest rate) or as a machinery hire purchase/machinery term loan. Small businesses in Singapore can qualify for a Micro Loan if they are registered or incorporated in the country and have less than 10 employees or an annual sales turnover of less than S$1 million. Businesses must also have local shareholding between 30 percent and 100 percent. Annual group sales turnovers cannot exceed S$100 million and group employment sizes must be 200 employees or fewer.
• Licensed Moneylenders: If business owners have difficulty trying to secure a loan from banks, they can try getting a loan from licensed moneylenders. The criteria for obtaining a loan from legal money lenders is usually not as tough compared to banks. However, please take note that interest rates are likely to be higher if you were to get a loan from licensed money lenders.
For more information on these business loans available to Singapore-based businesses, visit EnterpriseOne.gov.sg.