Guide to Securing Start-up Business Loans in Singapore

January 16, 2024

Getting a start-up business loan is vital for new entities in Singapore because, let’s face it, this isn’t the cheapest country to operate in. While Singapore may have low taxes, everything else - from rent to labour costs - are much higher compared to the rest of the region. Here’s how to get sufficient financing for your start-up business:

Here’s a typical scenario you’ll encounter, when starting up a business…

So you have a great idea that you think will really take off, but you need a webstore, you need two or three staff to help you, and you need some money for your initial inventory. You estimate that about $50,000 will be sufficient for your start-up.

(Note: we’re going to assume it’s a web business – if you need to rent an actual store, your start-up cost will be way higher: even renting an office typically requires three months’ rent upfront).

So first, you head to the bank

99 percent of the time, the answer will be no.

Most banks require two to three years of track record, before they’ll even consider giving you a business loan. You also need to submit your finances in a way they’ll accept.

(No, just pasting receipts to your notebook probably won’t be enough. You may need to send your financials in XBRL format, or do other things that require a paid accounting service).

Also, note that the days when you would be interviewed and argue your case for a loan are mostly over. These days, a computer algorithm works out whether you’re an acceptable risk; and there’s nothing you can say to the computer programme to change its mind.

Next, you turn to the internet for P2P lending

P2P lending platforms may let you get on them and ask for a loan (after screening you).

But lenders on these platforms are also careful; chances are, they’ll charge you a sky-high interest rate, or just ignore you and lend to someone with a longer track record. You’re back to square one.

But investors will lend you a hand, right?

The investors may be happy to give you the money you need, but not as a loan. Most investors want ownership in your company. If you decide to take $50,000 for half your company, and you later grow to a $500,000 company, then you’ve effectively “paid” $250,000 for a $50,000 infusion. That’s worse than any interest rate a legal lender could have charged you.

On top of that, they’ll have a big say in how you run your business.

Besides all this, there’s one other problem:

Believe it or not, you may be asking for too little money.

When mainstream lenders (e.g. banks) provide business loans in Singapore, they need to do a lot of work – this includes checking your company finances, making sure you’re not money laundering, and loads of other compliance checks. It’s a very expensive process. As such, most mainstream lenders want to disburse larger loans only, like $100,000, $300,000, or even more, as the interest earned can justify the effort.

Unfortunately, most start-ups will not qualify for such big loans; and even if you could get it, you may not want that much debt. It’s yet one more financing hurdle to face.

So what can a start-up do to get a business loan in Singapore?

To get a start-up business loan at a reasonable interest rate, you can consider approaching non-bank lenders.

To be clear, these lenders do have higher interest rates than traditional term business loans. This reflects the higher risk inherent in a start-up. However, it’s arguably better than having to give up ownership in your company, or your business closing due to lack of operational funds.

Check out loan providers like Friday Finance, or loan brokers who can provide business loans with interest rates as low as one per cent per month (plus half off administrative fees with prompt payments). You can even opt for flexible repayment options that suit your business.

Another advantage to using lenders like Friday Finance is that they’re willing to disburse smaller loans; it’s possible to borrow small amounts like $5,000 or $10,000 over very short terms, such as a month. Even if your business qualifies for a bank loan, most banks won’t be willing to handle such small transactions.

Think beyond banking, when it comes to business loans

As a start-up business owner – or even an established small business owner – you’ll quickly find that companies like yours are underserved. Traditional banks are better equipped to serve large corporations, not small businesses or start-ups.

As such, do think outside the box when it comes to financing, and look beyond the bank. You can contact us at Friday Finance for the solution you need.