What Is A Business Term Loan?
January 12, 2023
Money lenders in Singapore understand that successfully running a business, no matter the size, requires a lot of time, effort, discipline, and money. As a result, most are willing to offer long-term, seasonally structured business loans to local enterprises.
But what is business term loan? What are the options available? How can you apply for one?
To increase their chances of a successful application, it is vital for businesses to know what banks and money lenders consider before approving or rejecting their applications.
Read on to find out what is business term loan, the various business loans available, and how to make a business loan application in Singapore.
What Is Business Term Loan?
A business term loan is credit granted to an organisation for business purposes. Business term loans can be broadly categorised based on the lender of choice, loan tenure, business type, and business need.
Loans based on business needs can be used for equipment, property, or vehicles. Let’s look at most common business loan in Singapore.
Standard Business Loan
A standard business loan is an unsecured credit facility for businesses. It is usually payable in up to five years, or less. Major banks like DBS Bank, OCBC Bank, and United Overseas bank offer this loan.
Lenders look at how long a business has been around and its revenue.
SME Working Loan Capital
The SME Working Loan Capital is a special credit facility for local small and medium-sized enterprises (SMEs) in Singapore. The loan initiative is facilitated by the Singapore government and local banks.
This partnership allows banks to offer loan amounts of as high as $1 million to local businesses. The loan is usually repayable within one to five years.
The loan helps local businesses in Singapore access unsecured capital to finance their daily cashflow needs. The interest rate for the SME loan is subject to the risks of the borrowing entity.
To qualify for the loan, SMEs should be Singapore-registered, and Singaporeans should also have at least a 30% stake in the business. They should also not have more than 200 employees.
Startup Business Loan
The biggest challenge facing startups is obtaining funds to help them launch and grow. In Singapore, banks and licensed money lenders offer a mini version of a regular business loan, known as a startup business loan.
The loan facilitates the startup costs of a business and is often referred to as a first business loan. The loan can help enterprises to purchase supplies and machinery, rent a property, or renovate their premises.
A startup business loan is relatively easy to access, given its small cap of up to $100,000 for most lenders. Its repayment period usually lasts several months or a year.
Eligibility Criteria For Loan Application
In general, bank loans are strict with loan applications. First-time borrowers who often think they automatically qualify for a bank loan end up disappointed.
Most banks will also not extend credit to someone who does not hold an account with them. Therefore, you should approach a bank where you have an account.
Your account with the bank should also have a minimum balance and have transacted a particular amount. Good credit history will make it easier for you to access a bank loan.
Licensed Money Lenders
With most licensed money lenders, loan solutions are fast and reasonably straightforward. Their requirements are less restrictive for both citizens and foreigners. One such money lender is Credit Thirty3.
Singaporeans must provide their NRIC or passport for proof of identity and CPF or bank statements for proof of income.
Foreigners have to show their payslips and proof of residence documents such as utility bills and work permits.
To get a secured and unsecured loan with Credit Thirty3, you only need to do four things:
- Make an online application
- Wait for our loan officers to contact you
- Get an offer
- Sign the loan agreement and receive your money at our office
How To Apply
Step 1: Confirm Your Eligibility
Only those who are at least 21 years old should make business loan applications in Singapore. Banks are not likely to extend credit to those who do not hold an account with them.
Step 2: Get And Fill Up The Correct Loan Application Form
You can access most business loan application forms from a lender’s site or by visiting its office. Confirm that you have the correct form for the loan you want before filling up anything.
Step 3: Prepare The Required Documents
Along with the details in the application form, lenders in Singapore may ask for other supporting documents such as:
- NRICs or other identification documents for directors or partners
- Six-month business bank account statements
- Financial statements or report
- Goods and services tax statements
- Proof of company ownership
- Board of directors’ resolution (if applicable)
- Company’s constitutional documents
- Partners’ or proprietors’ tax compliance documents
- Or any other relevant professional documents relating to the business
Step 4: Choose The Loan Amount And Tenure
You should declare the loan amount you are applying for and the loan tenure.
Step 5: Submit Your Documents
Once you are sure that you have met all the requirements, submit your documents through the appropriate channels and await feedback.
Step 6: Review And Approval
The loan officer then verifies your documents according to the lender’s policy. The lender may also inform your guarantors of the application for endorsement.
Your application may either be successful or unsuccessful based on what they find after the loan application review. If the application is successful, the lender will notify you, and you will receive the funds. If it falls through, the lender will also inform you.
A business term loan processing in Singapore may last up to two weeks or more for banks. Licensed money lenders tend to be quicker.
Fees And Terms
Origination Or Processing Fees
Lenders charge fees for managing your paperwork to keep your loan approval on track. The amount varies among lenders, but is usually computed as a small percentage of your total amount.
Underwriting involves assessing a borrower’s eligibility and level of risk. During the process, the lender will consider your loan report, cashflow, bank and income statements, collateral value, revenue streams, and equity. Underwriting fees also vary between lenders.
This is the amount you pay a lender for giving you credit. It is usually a small percentage of the principal, and payable monthly.
This is money paid for defaulting on any loan repayment
If you repay your loan earlier than expected, the bank may charge a fee based on the flat rate or remaining interest. Contact your bank relationship manager for more details.
Why Your Business Loan Application May Be Rejected
Getting a loan from a bank or a money lender is not easy as most people imagine. It requires complete understanding and compliance with the lender’s terms.
A lender may reject a business loan application for several reasons. Below are some of these reasons:
Not Enough Track Record
Newer businesses often receive loan rejections. Their lack of a proven track record in their business area makes it risky for lenders to lend to them.
Lenders require that a business be around for at least six months to qualify for a standard business loan. Even still, they will consider your annual revenue before lending you.
If you want to increase your chances of receiving loan approvals as a new business, consider putting up collateral. This reduces a lender’s risk.
Poor Credit History
Lenders consider both the business and business credit history. A poor business credit history affects how lenders view the business operations and management.
A business that does not often repay its debts will most likely not receive more loans from other lenders. Non-repayment shows a lack of management and diligence by the business owners.
This also applies to an individual’s credit history, as many businesses are sole proprietorships. How promptly you repay your loans helps to determine how risky it is to lend you and your business.
Inadequate Business Cashflow
When reviewing your business loan application, the lender will check your cashflow or free capital. Poor cashflow shows that it might become harder for your business to raise enough cash for monthly repayments.
Does Not Meet Business Ownership Criteria
As mentioned above, some credit facilities in Singapore require locals to own at least 30% of the business. If a business does not have this, securing a particular loan in Singapore is likely to be harder.
Business loan applications involve more paperwork. Every document a lender requires must be authentic or filled to completion.
Some borrowers tend to leave out one or two documents that they deem unimportant. This affects their application.
Apply For The Right Business Term Loan
Businesses are constantly looking to raise money for investment and operations. But they can only increase their chances of receiving that loan if they understand and meet specific money lender requirements.
In this regard, Credit Thirty3 is willing to offer prompt assistance.
We are a top-rated business loan provider in Singapore. Our fast, secure, and affordable business loan products make us the go-to organization for most businesses.