How To Find The Best Short Term Business Loan
In business, unexpected expenses can pop up when you least expect them.
Whether it’s a broken piece of equipment or unplanned marketing costs, having a short-term business loan can help you stay afloat until your business is back on its feet.
But with so many options out there, how do you know which loan is right for your business?
We’ll tell you how to find the best short term business loan in Singapore, as well as the various types of short-term loans available.
How To Find The Best Short Term Business Loan In Singapore
Check out our step-by-step guide to find the best short-term loan for your business.
Assess Your Business Needs
The first step to knowing how to find the best short term business loan in Singapore is to assess your business needs.
What are you looking to finance with the loan? Are you looking to expand your business, purchase new equipment, or cover unexpected expenses?
Once you know what you need the loan for, you can start researching which type of short-term business loan best suits your needs. Different types of loans cover different business needs, so it’s important to choose the right one.
For example, a working capital loan would be a good option if you’re looking for a loan to cover unexpected expenses.
This type of loan can be used for any business purpose and is typically easy to qualify for. However, the interest rates of working capital loans are usually higher than other types of business loans.
On the other hand, an equipment loan would be a better option if you’re looking to finance the purchase of new equipment for your business.
Equipment loans are specifically for the purchase of new or used equipment and usually have lower interest rates than other types of loans. However, they may require collateral, such as the equipment being purchased.
Remember, each type of short-term business loan has its own set of benefits and drawbacks, so it’s important to do your research before you decide which one is right for your business.
Check The Size of Your Company
Is your company small enough to qualify for a small business loan? In Singapore, small businesses are defined as small and medium-sized enterprises (SMEs).
These small companies have an annual sales turnover of less than $100 million and employ no more than 200 employees.
If your company falls under this definition, you may be eligible for government schemes and assistance such as the Enterprise Finance Scheme (EFS).
The EFS offers loans of up to $300,000 to SMEs for working capital or business expansion purposes.
Check if you meet the eligibility criteria for such schemes before applying for a loan.
Know The Different Types Of Short-Term Business Loans
There are two main types of short-term business loans: secured and unsecured.
Secured loans are backed by collateral such as property or equipment. If you default on the loan, the lender can seize your assets to recoup its losses.
For instance, if you take out a secured loan using your home as collateral, the lender can foreclose on your home if you don’t make your payments.
While this may sound like a risky proposition, secured loans often come with lower interest rates than unsecured loans.
This is because the lender’s risk is mitigated by the collateral, which means it is more likely to get its money back if you default.
Unsecured loans, on the other hand, are not backed by collateral. This means that if you default on the loan, the lender has no recourse to seize your assets.
While this may sound like a good deal for borrowers, unsecured loans often have higher interest rates than secured ones. This is because the lender is taking on more risk by lending money to a borrower without collateral.
Check The Loan Tenure
When you’re in a hurry to get funding, it’s easy to gloss over the details in the loan agreement. But it’s important to read the fine print carefully before signing on the dotted line.
Different types of small business loans will have varying terms depending on the lender, but there are some key things to look out for:
This is probably the most important factor to consider when comparing short-term business loans.
Ensure you understand how the business loan interest rate in Singapore is calculated (e.g. daily, monthly, or yearly), and what fees are included in the rate.
If it’s a variable rate loan, find out how often the interest rate can change and by how much.
When looking at the interest rate, remember to also compare the total cost of the loan. This includes any upfront fees, as well as ongoing charges.
Some lenders will also charge exit fees if you pay off the loan early, so factor that in as well.
How often do you need to make repayments? And how much will each repayment be? The frequency of repayments can affect your cashflow, so ensure you’re comfortable with the schedule.
You might also want to consider a business loan with flexible repayment options, so you can make extra repayments when you have the cash and take a break when you don’t.
Failure to check the repayment schedule could leave you struggling to make ends meet, so it’s definitely something to keep in mind.
Decide On The Loan Tenure
How long do you have to pay back the loan? This can range from a few months to a few years.
Shorter terms usually mean higher repayments, but they also mean you’ll pay less interest overall. Longer terms give you more time to repay, but you’ll pay more interest in the long run.
Wherever your preference lies, choose a loan term that you’re comfortable with and that fits your business needs.
Some loans may have a balloon payment at the end of the term, which is a lump sum payment that can be difficult to afford.
If you’re considering a loan with a balloon payment, make sure you have a plan in place to pay it off.
Check The Loan Eligibility Requirements
When looking for business loans for SMEs, make sure you understand the eligibility requirements and what documents you need to provide.
Each lender will have different criteria, so it’s important to find one that suits your business.
However, you should generally expect to provide financial statements, tax returns, and other documentation to prove your business’s income and expenses.
Some lenders may also require collateral (e.g. property or equipment) as security for the loan. This means that if you can’t repay the loan, they can take the collateral and sell it to recoup their losses.
Make sure you’re comfortable with the terms before you agree to anything.
Consider All Options
There is a range of SME loans available in Singapore. From startup loans to government grants, there are plenty of options to choose from.
Below are some of the most popular types of loans:
1. A Revolving Loan
A revolving loan is a line of credit that you can draw on as needed. You only pay interest on the amount you borrow and can repay the loan over time.
This type of loan is ideal for businesses with irregular cashflow, as it gives you the flexibility to borrow only when you need it.
Some banks in Singapore offer small business loans with special interest rates, with no collateral required.
The OCBC SME Loan is one such option. You can enjoy an annual interest rate of just 0.88% per annum, and there’s no minimum loan amount or tenure.
2. An Equipment Loan
As its name suggests, an equipment loan is used to finance the purchase of new equipment. The equipment itself is used as collateral for the loan, so it’s often easier to qualify for than other types of loans.
This type of loan can be a good option if you need to finance the purchase of expensive equipment such as machinery or business vehicles.
If you default on the loan, the lender can repossess the equipment. This type of loan is best for businesses with a steady income, as you’ll need to make regular repayments.
3. Invoice Financing
When small businesses need a short-term loan, they often turn to invoice financing. This type of financing allows your business to borrow money against outstanding invoices. The lender gives you a percentage of the invoice value upfront and then pays the remainder when the customer pays the invoice.
Invoice financing is a good option for businesses because it is fast and easy to obtain and does not require collateral.
In addition, because companies are only borrowing against their outstanding invoices, they can continue to generate new invoices and maintain a steady cashflow.
4. Business Credit Cards
Another way to get a short-term business loan is to use a business credit card. This can be a good option if you have good credit and can qualify for a 0% APR introductory offer.
Just be sure that you understand the terms of the card before you sign up, as some cards have high interest rates after the promotional period ends.
If you decide to go the business credit card route, be sure to use your card responsibly. Only charge what you can afford to pay back, and make your payments on time each month.
If you do this, you can avoid paying interest on your loan and get a little boost to your business’s cashflow.
Learn How To Find The Best Short Term Business Loan Today
Are you still unsure of how to find the best short term business loan in Singapore?
Taking on a loan is a big decision, so ensure you consider a few things before you apply.
From government grants to equipment loans, there are plenty of options available. Compare the interest rates, repayment terms, and eligibility requirements before you choose a loan.
If you’re looking for a short-term business loan, BST Credit can help. We are a licensed money lender that offers a wide range of loan products to suit your needs.
Our experienced team can help you choose the right loan for your business.