How To Find The Best Short Term Business Loan
December 8, 2022
Small and medium-sized enterprises (SMEs) will require a cashflow injection at one point in their growth cycle. Short-term business loans are a great option for funding growth or increasing the cashflow your business needs to keep operating.
But with so many lenders out there, it can be hard to know where to start.
As an SME owner, you will need to research the types of financing available and which one suits your business.
This article discusses short-term business loans, and gives you some tips on how to find the best short term business loan.
What To Consider When Selecting A Short-Term Business Loan
Before you sign up for a short-term business loan, you need to consider several factors. These are the main factors you should consider.
The higher the interest, the more expensive the loan will be in the long run. A short-term loan usually has a higher interest rate due to the shorter repayment period.
You need to make sure you research and choose a loan with the lowest interest rate. Although it should not be your only consideration, it is an important factor that you should keep in mind.
Loan Terms And Tenure
A short-term business loan is generally repaid on a daily or weekly basis. The interest is usually repaid within three to 18 months.
Be sure to take a loan with favourable terms. Short-term business loans will have higher monthly repayments compared to long-term loans.
Do up your monthly budget and consider how much can go into the loan repayments. Choose the right loan tenure based on this.
It’s also important to check the fine print and ensure the loan works for your business. Make sure the loan terms and tenure make sense to your business model.
Admin Costs And Other Fees
Before you take up the loan, make sure you check other charges such as admin fees, penalties for late payment, and other loan costs.
Choose a loan with a lower cost. Some of these fees are deducted from the amount disbursed to you.
Examine the steps that the lender will take if you make a late payment. Work with a lender with less punitive measures in case the worst happens.
The amount you require determines the lender you will work with. Most lenders have a minimum and maximum loan amount.
Determine how much you require and choose a lender who will be able to grant you such amounts. However, make sure you don’t overborrow. Borrow what your business requires and you can pay back.
Types Of SME Loans
There are a few different types of small business loans that you can apply for, each with their own set of benefits and drawbacks.
Here are some of the most common short-term business loans in Singapore:
A business loan is an unsecured business loan that does not require collateral. Most business loans have a tenure of up to five years, and they are offered by major banks in Singapore.
OCBC Bank offers a maximum loan of $ 100,000 with a tenure of up to four years. The eligibility criteria for most business loans are as follows:
- In operation for six months to two years
- Businesses should have a turnover of specific amounts
- The business should be registered in Singapore with at least 30% local ownership
You can use a business loan to cater to various business needs such as buying machinery and boosting cashflow, among others.
Government-Assisted Business Loans
The Singapore government offers SME Working Capital Loans, which are designed to help businesses recover from the pandemic’s effects.
An SME Working Capital Loan is offered to small businesses with 200 employees or less. The government, in conjunction with banks, offers up to $1 million to SMEs for a period of up to five years.
To qualify for the loan, the SME must be registered and physically present in Singapore with at least 30% of the shareholding held by Singaporeans.
Start-Up Business Loans
Start-up business loans can help kick-start your business. Most lenders offer this kind of loan to businesses that have been in operation for a few months.
If your business has been in operation for only a few months and does not have a strong financial standing, you can apply for this kind of loan.
What Can A Short-Term Business Loan Be Used For?
Small business loans can be used for a variety of purposes. Although debt financing is often viewed with mixed reactions, if well utilised, it’s the gateway to growth for most businesses.
Here are some of the uses of short-term business loans:
Expansion And Growth
You can use your business loan to enhance your growth rate. A short-term business loan will enable you to carry out your business expansion plans without having to remain in debt for too long.
If your business is facing cashflow issues that are making it hard to operate, a short-term business loan can give you the quick cash boost you need to turn the tides of your business. Make sure you choose the right type of business loan to ensure your business runs smoothly.
Capitalise On Business Opportunities
A short-term business loan will come in handy when a business opportunity arises. Unexpected business opportunities, such as good deals on items, only come once in a while.
If the deal is good for your business, visit a lender to get the financing to take advantage of the opportunity.
Taking advantage of such opportunities will enable your business to grow. A short-term loan is also good for businesses in capital-intensive industries. The loan ensures your business does not grind to a halt due to a lack of funds.
Improve Your Business Credit History
Taking a short-term business loan and repaying it as per the agreed schedule creates a positive credit history for your business.
This is important as your business is growing and you may need to take up more loans in the future. A positive credit rating improves the chance of getting loans in the future.
Tax interest is tax deductible, and that reduces the revenue subject to tax. In general, debt is considered cheaper than equity.
With equity, dividends earned are subject to tax and you have to give up control of your business. Plus, investors expect higher returns. But with a loan, you can source for a lower rate.
Comparing SME Loans
Before you sign up for a business loan, make sure you compare the various short-term loan options available. Compare the loans by checking the following:
Maximum And Minimum Amounts From Each Lender
Compare what different lenders are offering. Based on your business needs, choose one that best suits your business.
Most lenders allow you to take five years to repay a revolving short-term loan.
The lower the interest rate, the better. Most lenders offer a rate starting at 10.88% (EIR).
Such fees increase the cost of your loan. Look out for loans with low or no annual fees.
Most lenders have a lock-in period of up to two years. The shorter the lock-in period, the better. When the lock-in period ends, you can refinance your loan at a lower interest rate.
Early Repayment Or Cancellation Fees
Check to see whether your lender of choice will penalise you for repaying your loan before the agreed time.
Most lenders charge an early repayment fee. Choose a lender with the lowest cancellation or prepayment fee.
Other Loan Fees
Other fees you should consider include processing fees and administration fees, among others. Such costs raise the price of the cheapest business loan, so you should select a loan with the lowest fees.
Where To Get A SME Loan
If your business requires SME loans, then check out these lenders.
Credit Thirty3 is a licensed money lender and offers affordable business loans. If you have a business emergency, Credit Thirty3 will offer you the money you need. It offers instant loans to help you keep your business running.
OCBC Bank SME Loans
OCBC Bank offers several types of small business loans. Based on its requirements, here is what you can get from OCBC:
- The Business First loan requires a maximum of $200,000 with a loan tenure of up to four years. To apply for the loan, you will need a guarantor and an annual income of at least $30,000.
- SME Business Loans have a tenure of four years, and you can borrow up to $100,000. The business must be locally owned, have an annual turnover of less than $100 million, and have less than 200 employees.
DBS Bank Digital Loan
DBS Bank allows you to borrow a maximum of $200,000 for a loan tenure of five years. The loan is available to businesses registered in Singapore with 30% shareholding locally owned. This loan gives you the choice of when to pay the interest. You can choose to pay the interest during the first 12 months.
Standard Chartered Business Installment Loan
You can borrow from $70,000 to $300,000 from Standard Chartered if you have an annual turnover of $75,000 and you have been operating for at least three years. The loan tenure is up to three years. Up to 50% of the business must be owned by locals.
The Right Short-Term Loan Can Save Your Business
Now that you know how to find the best short term business loan, it’s important to assess the needs of your business, prepare a budget, and research the best small business loan for your business.
Make sure you understand the loan terms before you sign the loan contract. Use the loan as planned and expand your business.
Small businesses that require short-term loans to quickly turn around their operations or take advantage of an opportunity can turn to licensed money lender Credit Thirty3.