Starting a new business venture all by yourself can be exciting yet challenging, securing the necessary funding is often a critical first step. Entrepreneurs can choose between personal loans and business loans, each with its own advantages and drawbacks. Let's find out which option is better for your business!
What is a Business Loan?
As a business owner, you may need financing to kick-start your operations, scale up your business, or simply maintain a steady cash flow. This is where business loans come in, which can help entrepreneurs in Singapore take their businesses to the next level.
There are two main types of business loans available in Singapore: government-linked loans and private business loans. Government-linked loans come with specific requirements, such as shareholding, but offer 50% to 70% risk-sharing on the loan, which can help moderate interest rates.
Private business loans, on the other hand, are offered by banks and financial institutions and allow for more flexibility in loan structure, interest rates and loan tenure. This gives borrowers the opportunity to negotiate favourable terms that suit their specific business needs.
To apply for all standard business loans, it’s important to be aware that only registered businesses which have been operating for at least 6 months are eligible.
How do I get a small business loan?
If you are a small business, and your company is relatively new or not making the required revenue to apply for a regular business loan, you can consider applying for a special business loan targeted towards smaller or struggling companies:
SME Working Capital Loan: A type of low-cost business loan that local Singapore-registered SMEs can apply for which can be repaid within 1 to 5 years.
Startup Business Loan: Similar to a standard business loan, but with a smaller loan amount cap. This type of loan is good for companies that have only been operating for a few months.
Temporary Bridging Loan: If you have a Singapore-registered SME company that is at least 30% owned by Singaporeans, this type of loan may work for you. The repayment period goes up to 5 years.
In short, if you’re at the early stage of your business or just in the process of turning your entrepreneurial dream into a reality, applying for one of these small business loans or a personal loan would be a better option.
How is a Personal Loan different from a Business Loan?
As opposed to a business loan, you don’t need to be registered as a business to apply for a personal loan. This type of loan comes in handy especially when you’re just embarking on this journey and need funds for initial investments, inventory, or other expenses. Here’s a quick comparison of business and personal loans to better guide you through the decision-making process.
Business Loan vs Personal Loan In a Nutshell
Specifically for business-related expenses
Can be used for any personal expenses or individual needs
Can only be applied for by registered businesses that have been in operation for at least 6 months
Anyone can apply for a personal loan permitted they meet the prerequisites of the loan provider
Business needs and scale are taken into consideration, hence, generally higher than personal loans
Fixed in relation to the individual’s personal income, usually 4x higher than the monthly salary. Higher-earning individuals can potentially borrow up to 10x more
Lower cap on interest rates compared to personal loans
Generally higher interest rates subject to the borrower’s financial profile including credit score and history
Based on the type of business loans, repayment period could be between a maximum of 3 to 5 years
Generally allows a longer period compared to business loans, can be as long as 5 to 7 years
Government offers 50-70% risk-sharing on some business loans
No risk-sharing provided by the banks or financial institutions
Usually 2 weeks or more
Generally within a few days
How to apply for a Business Loan in Singapore?
After taking your time to understand the differences between business and personal loans, you might now be interested in taking out a business loan in Singapore. Here are a few simple steps to guide you through your application:
Start by determining how much you need to borrow and what type of business loan would work best for your business.
Gather your financial documents and check your credit score to ensure you meet the eligibility requirements.
Research different loan providers and compare their rates, fees, and terms.
Complete the business loan application form and provide all necessary documentation and wait for approval. If approved, you'll receive the funds in your business account to use as intended.
Best Business Loan Options in Singapore
As mentioned earlier, when it comes to business loans in Singapore, you have two main options: government-linked loans and private business loans. Government-linked loans come with specific requirements but offer attractive interest rates and risk-sharing by the government. Private business loans are offered by banks and financial institutions, with interest rates and terms that vary depending on the loan provider and product.
Some popular private business loan options include the OCBC Business First Loan, DBS Business Term Loan, and UOB BizMoney Loan. Make sure to do your research and compare different options before choosing a loan that fits your business needs. And don't forget to read the fine print before signing on the dotted line!
Things to keep in mind when applying for loans in Singapore
When applying for a loan, there are several factors to consider beyond just the loan type. You'll need to provide a variety of documents, including your bank statement, proof of income, and business plan.
The loan application process can also be lengthy, so be prepared to provide detailed information and answer any questions the loan provider or bank may have.
Consider the repayment period and interest rates associated with the loan, as these can greatly impact your financial situation over time.
Carefully review the terms and conditions of the loan before signing and make sure you have a clear understanding of your repayment obligations.
Finally, be sure to undergo thorough financial planning and have a backup plan in case your business comes across unexpected challenges that impact your ability to repay the loan. You can consider renegotiating your repayment schedule or going for debt counselling should this happen.
How to get a Business Loan or Personal Loan in Singapore? Lendela can help!
With so many types of loans available in the market, it could be exhausting and time-consuming to narrow down the best loan in Singapore. As a busy entrepreneur, it is better to spend your time developing new products or expanding the market share, and this is where Lendela can help. Just take 2 minutes to fill in the questions on our loan comparison platform, and our algorithm will show the best loans for your business needs and profile. If you apply for business or personal loans through Lendela, you also raise the chances of the application getting approved!
- Business loans and personal loans are both options for financing your business, but they have different benefits and drawbacks to consider.
- Business loans are specifically designed to cater to the needs of business owners, while personal loans are more general and can be used for a variety of purposes.
- Government-linked business loans and private business loans are the two main types of business loans in Singapore, with different eligibility criteria and terms.
- When choosing between a standard or small business loan and a personal loan, it's important to carefully consider your business needs, financial situation, and repayment ability in order to make the right decision for your business.