How To Find The Best Short Term Business Loan

Written by 1AP Credit on October 31, 2022

Starting and running a business in Singapore can be challenging. However, a short-term business loan for small and medium-sized enterprises (SMEs) can save the day.

This type of loan can help you settle emergencies, pay start-up costs, purchase inventory, or maintain your business cashflow.

But with multiple banks and licensed money lenders offering such loans, choosing the right one for your business might be challenging.

You need to pick the right short-term loan, otherwise, your business may suffer.

This article provides a complete guide on how to find the best short term business loan. Read on to find out more.

What To Consider

Before picking a short-term business loan, you should consider the following factors.

How Much You Need

A short-term business loan should help your business reach the next level. Therefore, you should not borrow more than what you need.

Remember that these loans have higher interest rates – thus, borrowing too much will only increase your expenses and add to your stress.

So before taking a short-term business loan, determine if the loan will help you generate enough income such that you can repay it within the loan tenure.

Also, examine your business plan and goals for the next few years and see if the loan fits its purpose.

The Loan Terms

Pay close attention to important loan terms such as interest rates, loan tenure, and repayment options.

You should compare several options from various lenders to identify a loan with a low interest rate. Check that the repayment period gives you ample time to repay the loan without straining your finances.

Types Of Loans For SMEs

There are several SME loan options available in Singapore. Here are some of them.

Term Loans

A term loan is a lump sum amount you borrow from a bank or a licensed money lender and repay over a fixed term.

Repayments are made in installments of fixed principal and interest. You can use a term loan for various purposes, including buying equipment and catering for daily expenses.

Invoice Factoring And Invoice Financing

This option is great for businesses that often experience payment delays. Invoice factoring allows you to sell your unpaid invoices to a lender to get a portion of your invoice value upfront.

Meanwhile, invoice financing allows you to get advance payments from your due invoice.

The difference between the two is that invoice factoring requires you to surrender your invoice to the money lender, which will then collect all payments on your behalf and use them to repay the loan.

However, invoice financing does not work this way. You will retain control over your unpaid invoice, collect payments and use them to repay your loan.

Business Lines Of Credit

You may have thought of getting a business loan but are not sure of the amount you need.

If so, you may consider a business line of credit.

It works like a credit card – it has a revolving loan limit that you can access or withdraw anytime through a checking account.

The good thing is that you can spend up to the maximum limit. Also, the interest charges only apply to the amount you withdraw from the checking account.

In addition, the loan is unsecured. So you will not need collateral to secure it.

Merchant Cash Advances

This loan allows you to borrow a lump sum against your future sales. Repayment options are usually a percentage of your credit card sales or weekly bank account transfers.

However, the high interest rates of merchant cash advances may discourage business owners.

Equipment Loans

An equipment loan is usually used to purchase large equipment and machinery essential to business operations.

You can use this loan to buy computers and vehicles, and more. However, the equipment you purchase will act as collateral.

Therefore, when you default on your repayments, it will be sold.

What Short-Term Business Loans Can Be Used For

A short-term business loan in Singapore can be used to:

Cover Start-Up Costs

Short-term business loans have easy eligibility criteria, making them easier to qualify for. Therefore, they are viable options for new and established business owners.

You can use start-up loans in Singapore to leverage your start-up costs.

The good thing about short-term business loans is that your credit score may not matter too much as your money lender may be able to overlook it due to its nature of repayment (i.e. daily or weekly payments).

Purchase Inventory

Retail business owners most often use short-term business loans to purchase inventory. This means you can use the loan to buy inventory for the holiday season in advance, even if you do not have enough cash.

If you manage to purchase inventory at discounted prices, you will make a profit from the sales you make.

Address Emergency Situations

Small, medium-sized and large businesses all encounter emergencies from time to time. If you experience one, an emergency loan can help you out.

However, before taking the loan, ensure you work out a clear repayment plan in advance.

Improve Cashflow

Most short-term business loans often have shorter-than-usual loan tenures, which makes them suitable for temporary cashflow situations.

So take this loan if you need cash within the shortest possible period. But do ensure your business model allows for daily loan payments.

Therefore, if your business has huge daily expenses or very few clients, do not take a short-term loan.

Comparing SME Loans

This is a great way to ensure you get the best deal. Below are the criteria you should use when comparing these loans.

Start by analysing your business needs. This will give you a clue about the best loan for your business model.

An SME may need a micro loan to make a one-time purchase or address short-term needs. If not, you can consider a working capital loan when purchasing an expensive asset or expanding your business.

After identifying the right SME loan for your business model, compare the interest rate, loan tenure, fees, and other charges offered by various lenders.

Finally, pick the loan with the lowest interest rate.

It should also have lower fees and a more realistic tenure, giving you ample time to repay.

Where To Get A SME Loan

To know how to find the best short term business loan, you should do some research. You can get a SME loan from banks or licensed money lenders.

Banks

There are several banks in Singapore offering SME loans. However, to qualify for most of these bank SME loans, your business must have been in operation for at least two years.

Also, at least 30% of your company should be owned by Singaporeans or permanent residents. Note that most of these loans have a loan tenure of five years.

However, banks have long processing times, which may result in a delay of the funds.

Here are some banks* that offer SME loans in Singapore.

*Information correct at time of publication. Please contact the respective bank for verification. 

DBS Bank 

DBS offers small business loans of up to $500,000, which you can repay within five years. Its interest rates are competitive, currently at 7-11% per annum, depending on your loan.

However, your business must have adequate income flow in order to qualify for a DBS SME loan.

OCBC Bank 

OCBC offers SME loans to businesses that are at least 30% owned by Singaporeans. You can borrow up to $500,000 to finance your business operations. You will have up to five years to repay the loan.

Standard Chartered Bank

Standard Chartered offers installment loans to local businesses in Singapore.

However, compared to DBS and OCBC, Standard Chartered offers a lower amount as the maximum amount you can borrow.

In general, businesses can borrow $70,000 to $300,000. This loan attracts a competitive interest rate, currently at 11% per annum. You can take one to three years to repay this loan.

Licensed Money Lenders

Alternatively, you can approach licensed money lenders that provide competitive SME loan offers if you are rejected by a bank when applying for a small business loan in Singapore.

One example is 1AP Capital, which offers business loans for a diverse range of businesses, including healthcare, manufacturing, technology, and many more.

The licensed money lender has a valid license to operate a moneylending business in Singapore.

The good thing about this money lender is that it has accessible eligibility criteria. So getting approved for a loan from it is much easier than getting it from a bank.

It also has a quick, streamlined application process that ensures fast application, approval, and disbursement of an SME loan.

You must provide the following documents to qualify for an SME loan:

  • Six months of bank statements
  • NRIC copies of the business directors
  • Proof of assets
  • Current Accounting and Corporate Regulatory Authority (ACRA) printout
  • Business premises’ tenancy agreement
  • Income tax statements
  • Profit and loss statement

Comparing Short-Term Business Loans Is Key

Now that you know how to find the best short term business loan, you should compare several loan offers.

Analyse your business needs first before opting for a particular short-term loan.

Also, compare the loan terms, including the interest rate, fees, and loan tenure, to identify the most suitable option.

If you need help, contact our experienced loan officers at 1AP Capital, who will be more than happy to assist you. Or apply for a loan with us now.

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