Best Banks for Small Business Loans in Singapore

Advantages of Bank Loans:

1. Multiple Loan Options

All banks advertise multiple types of business loans depending on the purpose of borrowing the money. For example, banks offer different schemes to those setting up a business and those already running a business.

2. Cost-Effective

When comparing interest rates, bank loans are usually the cheapest option compared to credit cards. Some bank loans, on average, charge interest rates ranging from 7% to 11% per annum compared to credit cards with interest rates ranging from 25% to 28% per annum

Lower interest rates of bank loans will definitely help your business save money. However, the interest rate is not the only fee that might be charged. It is also recommended to find out about the bank's early/late repayment fee and process fee.

3. Flexibility

Banks don't usually monitor how you use your loan. With bank loans, you only need to worry about making your regular instalment payments on time. For that reason, you have full flexibility on however you want to invest.

4. Retained Profits

Banks are only interested in getting their principal and interest amount on a loan. Banks will not ask for the profits that you make. In contrast to loans from angel investors or VCs, there will be an agreed amount of shares that will be given to the lenders from the profit that you make.

Despite the advantages that bank loans offer, there are also some downsides when your small business takes a loan from banks.

Disadvantages of Bank loans:

1. Strict Requirements

Besides the better option for lower interest rates, banks are also known to have a long list of conditions and requirements that a business should fulfill before they can get the loan. It is sometimes hard or even not possible to meet all of them.While most bank loans require some form of collateral, startups, SMEs and existing businesses without any assets may find it difficult to get the loan application approved. Most of the time, if the borrowers decided to go for unsecured loans, they will be given higher interest rates.

2. Repayment Burden

As mentioned before, there is no agreed amount to be shared from profits when your loan from banks. With banks, you only need to pay the agreed principal and interest amount of your loan. Hence, it is crucial to pay the bank with the right amount on time. Those who fall behind on paying back the money will face the prospect of having their assets seized.

Some banks have early/late repayment fees that might be charged every 1 day. Even if you manage to make late payments, your bank could still report you to credit bureaus. If that happens, it will make a negative impact on your credit score. With a lower credit score, obtaining loans in the future becomes more difficult.

3. Risk of Losing Collateral

As bank loans generally require some collateral. For small businesses,  it is often the entrepreneur's house and property. Hence, there is a risk of losing the collateral in the event of borrowers fail to pay the bank back.

Best Banks for Small Business Loans in Singapore

1. DBS

DBS offers business loans to all Singapore-registerted businesses with funding up to S$500,000 per loan. Interest rates start from 7% p.a. and a loan tenure of up to five years. 

2. UOB

The UOB BizMoney business loan offers amounts of up to S$350,000, with a tenure ranging from one to five years and an indicative interest rate of 10.88% p.a.

To qualify, businesses must be registered and operating in Singapore for at least one year. Eligible entities include sole proprietorships, partnerships, and private limited companies, with a minimum local shareholding of 30%.

3. OCBC

OCBC offers multiple small business loans such as the Business First Loan and the Business Term Loan, both catered to small businesses with varying financial needs. The Business First Loan lets you borrow up to S$100,000 at an indicative interest rate from 8% p.a. to 11% p.a. and a tenure of up to five years. Businesses from six months to 2 years old can qualify for this loan. Additionally, it should be at least 30% owned by a Singaporean or PR, with at least 1 employee business and more than 50% equity owned by individuals.

The Business Term Loan allows for a maximum loan amount of S$700,000 at an indicative interest rate of 7% p.a. to 11%p.a. with a tenure of up to five years. To be eligible for this loan, companies should be locally incorporated, operating for at least 2 years and be at least 30% owned by a Singaporean or PR. 

4. Standard Chartered

Standard Chartered offers the Standard Chartered Business Instalment Loan which provides up to S$500,000 funding per loan at an indicative interest rate of 9% p.a. and a tenure period from one to five years. 

Companies should be Singapore-registered sole proprietors, partnerships or private limited companies with 50% or more shareholdings held by Singaporeans or Singapore PRs to qualify for this loan. Companies should have at least 3 years of business operations with a minimum turnover of S$750,000.

Alternatives to a Bank Loan

1. Peer-to-Peer Lending

These days there are many online platforms that match small business owners seeking for loans with potential lenders. Basically, businesses post a profile with background information and what they need the money for.

2. Merchant Cash Advance Financing

For short, with a merchant cash advance, a financing company advances you cash in exchange for your future credit card sales, plus an additional fee. The benefits of a merchant cash advance compared to a bank loan is that there is no collateral required and you don't need a perfect credit score.

‍Read more about merchant cash advance financing here.

3. Business Credit Line

It is similar to credit card, an easy way to fund operations, but of course, as long as you can commit to paying off the balance in 30 days. Business credit line provides you an amount up to a certain limit in which you can take and pay interest only on the portion of the money that you borrow.

4. Online Loans by non-bank providers

Online business loans provided by non-bank financial institutions are a quick, flexible alternative to traditional bank loans. They are accessible to all registered businesses, with easy, fast online applications and approvals within 24 hours. These online loans are ideal for small businesses and startups, providing funds based on cash flow and business performance rather than strict requirements. They also offer flexibility, allowing businesses to choose how much to borrow, with many lenders operating fully online for a hassle-free experience.

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