How Much Does It Cost to Get a Small Biz Loan?

applying for a loan

Today, the cost of taking out a small business loan in Singapore depends on whether your enterprise has been around for a few years or it is relatively new.

If you plan to borrow money from banks, your business should ideally exist for from two to three years with at least $500,000 of revenue. Lending requirements among banks are generally stricter than alternative sources such as crowdfunding and peer-to-peer (P2P) loans, although interest rates from the former are much lower with longer tenures.

Comparing Interest Rates

Banks usually charge as low as 4 percent up to 10 percent on annualized interest rates. Some traditional lenders can grant loans worth up to $550,000. The maximum term lasts from a year to five years. Small- and mid-size business (SMBs) owners have more chance of approval for their loans, so you should consider P2P and crowdfunding loans if your business only debuted in the last few months.

Alternative loan sources have higher interest rates ranging from 9 percent to 20 percent. The loan terms are shorter as well, generally maturing after 36 months. The good thing about P2P and crowdfunding loans involve a higher loanable amount. It’s possible to borrow as much as $5 million for your business. You can also receive the money within three business days.

Applying for a Startup or SMB Loan

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Start-up business owners could have a higher chance of approval when they manage their finances before seeking out potential lenders. First-time borrowers, in particular, must look into their credit reports to find out any inaccuracies that can hurt their application. Banks don’t necessarily discriminate against those with multiple loans. On the contrary, some banks even prefer loans applicants with a diverse debt history such as credit cards and mortgages.

A high credit score, of course, tips the odds in your favor in combination with banks’ other ideal characteristics. There’s no such thing as being too prepared with your loan application. Studies show that four out of five businesses in the country don’t qualify for bank loans, probably because of incomplete documents or not laying out a convincing business development plan.

How to Handle Rejection From Banks

By now, you should realize that loan approval from banks isn’t easy and guaranteed. Since rejection is common among SMB loan applicants, you should focus more on borrowing from other lenders. Licensed companies in Singapore that cater to small companies are an example.

If you’re looking into equity funding, you won’t have to pay any interest rate in exchange for ownership dilution. Remember that you can borrow up to $20 million for this type of financing, but some fees range between 5 percent and 8 percent.

In the end, unless your company has been around for two years, it’s better to seek out other sources of business capital. Some licensed lenders in Singapore only require a business to be a year old to be eligible for their business loans. These companies can even process your application in as fast as 30 minutes.

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