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SME financing in 2023 - What are the lending options for small businesses?

SME financing in 2023 - What are the lending options for small businesses?

  • 21 December 2022
  • By OCBC Business Banking
  • 10 mins read

Loans serve many purposes. Besides helping SMEs tide through difficult times, they can improve the capabilities of a business and ensure it stays profitable and sustainable in the years ahead.

Choosing a loan that is fit to purpose takes time. From general to specialised, there are many types of small business loans in the market with varying repayment periods.

Taking on a business loan is something practically all SMEs do to grow. By leveraging their strong financial track record, SMEs can get their loan approved more easily. Apart from this, businesses secure funds to keep ahead of the ups and downs of the economic cycle, gear up for changes in the marketplace and take advantage of seasonality. There are many other reasons why applying for business loans could be beneficial even when it seems like you don’t have to.

With many business financing options that are available, keep on reading to find out the different types of business loans for SMEs in Singapore.

Different Types of Business Loans for SMEs in Singapore

      1. Working Capital Loans

        1. Business Term Loan
          A business term loan is a lump sum of money you borrow from a lender and then pay back over a certain period at regular intervals (or terms) with interest. You might pay back the loan weekly, biweekly, or monthly, depending on your lender. Repayment intervals or terms can be as short as a few months or as long as ten years.

          The Business Term Loan at OCBC is an unsecured loan that can be used to fund daily operational needs such as inventory purchases and payroll, or to finance business expansion plans such as leasing a new retail outlet. This loan provides financing of up to S$700,000, which can be repaid over a period of up to 5 years.
        2. Short-term Financing
          Another lending option for SMEs is invoice financing. This is different from regular-term loans, in that businesses only borrow amounts that have been invoiced.

          At OCBC, invoice financing is otherwise known as Short-term Financing. You may use the OCBC Short-term Financing tool for purchases, so large and unforeseen expenses do not disrupt the cash flow needed for routine expenses like rent or salaries.

          On the other hand, you can use it for sales too, which allows you to offer longer payment terms to your clients. This can help make your business more attractive than competitors, especially as economies continue to struggle to recover from the pandemic.

          With OCBC’s invoice financing, businesses can also get quick access to the funds they need. The costs are relatively low at 0.6% per month, which is why OCBC Short-term Financing can be a harbour for businesses in uncertain times. In another article, we did a comparison between term loans and invoice financing.
        3. SME Sustainable Financing
          ESG (Environmental, Social and Governance) is a buzzword today because it safeguards the future of businesses and individuals alike. As such, more businesses are looking to commit more to sustainability, which speaks volumes in business partnerships.

          Consumers, partners, and investors are all looking to align themselves with businesses that are trying to improve the world. Individuals are also inclined to work for businesses that share these aspirations.

          In addition, businesses at the forefront may benefit from conversations with regulators, to shape their industries into hubs for green collaboration.

          To further encourage businesses on a green path, the Monetary Authority of Singapore has launched the world’s first grant scheme to encourage SMEs to take up green loans and sustainable financing to meet their sustainability goals.

          Functioning like regular loans in financial terms, these green and sustainability-linked loans help spur your business on towards green transformations by defraying the costs. OCBC has an SME Sustainable Financing Framework that makes this process simpler for businesses, and also covers areas of funding that include renewable energy, green buildings and sustainable water and wastewater management.
      2. Government Financing Schemes

        There are a range of financing options from the government under the Enterprise Singapore’s Enterprise Financing Scheme to support SME lending. Loan default risk, in the case of insolvency, will be shared by the government agency and participating financial institutions like OCBC.

        SMEs at various stages of growth can tap on these loans to gain capabilities, create products, and expand overseas.
        1. Business First Loan
          The Business First Loan is specially designed to provide funding of up to S$100,000 to young businesses who are six months up to two years in operations. Young startups can benefit from this loan to speed up expansion plans, cover necessary day-to-day expenses, refine existing or develop new products or services and more.
        2. SME Working Capital Loan
          The government introduced the SME Working Capital Loan (WCL) to help SMEs across all industries get access to working capital for their business needs. The EFS-WCL has been enhanced to allow a higher borrowing cap of S$500,000 until 31 March 2023.
        3. Enterprise Financing Scheme - Green
          Enterprise Financing Scheme-Green (EFS-Green) enables better access to green financing  for enterprises that are Project Developers, System Integrators and Technology & Solution Enablers which develop enabling technologies and solutions to reduce waste, resource use or greenhouse gas emissions, especially in sectors of Clean Energy, Circular Economy, Green Infrastructure and Clean Transportation.

          Aligned to the Singapore Green Plan 2030, which identifies a focus on helping local enterprises develop capabilities, build track-record and capture growth opportunities within the green economy to develop a strong pool of enterprises within these sectors. From now till 31 March 2024, businesses can apply for the EFS-Green scheme to capitalise on green opportunities.
        4. Business Venture Loan
          The Business Venture Loan supports the growth plans of later-stage enterprises like SMEs and start-ups. These businesses, with a group annual sale of S$500m or less, may not have enough collateral to qualify for traditional bank loans. Therefore, from 1 April 2021, businesses are allowed to borrow up to S$8m under this scheme.
        5. Enterprise Financing Scheme - Merger and Acquisition
          Mergers and Acquisitions (M&A) are not just reserved for large corporations. SMEs can leverage M&As as a strategic tool to grow and expand by gaining economies of scale and acquire market share and capabilities to seize business opportunities. SMEs can get up to S$2 million to finance the acquisition of local or overseas companies with the Enterprise Financing Scheme – Merger and Acquisition scheme.
      3. Fixed Assets Financing

        1. Commercial Property Loan
          Getting a space to call your own is a milestone for business owners. As an owner, you will be able to structure and use the spaces as you see fit to bolster a company culture, thus increasing employee loyalty. Additionally, your business will not need to adhere to strict refurbishment and visitor guidelines or renegotiate with landlords once rental contracts are up.

          The Commercial Property Loan at OCBC can help your SME better finance this big-ticket purchase. Whether you are looking to purchase a new property or refinance your existing property, your business can borrow as much as 80% of your property purchase price or valuation with a loan tenure of up to 30 years. Your business can also consider retrofitting your existing property for energy efficiency, which can help you save on electricity bills. Assess the energy efficiency of your commercial property at zero cost and learn ways to retrofit your property for energy savings by applying online with us today.

        2. Equipment and Machinery Financing
          Many small businesses rely on costly equipment to manufacture end-products or to provide services to their customers but buying equipment or commercial vehicles outright can require a significant cash outlay. OCBC’s Equipment and Machinery Financing can help your business acquire the equipment it needs, by financing as much as 90% of your equipment or commercial vehicle’s purchase price or valuation. The right investment in equipment or commercial vehicles can boost your business’ performance and enhance productivity – ramp up production, get hold of extra vehicles or improve business processes to protect the environment for future generations.


Summary of the Different Types of Business Loans in Singapore

There are many types of business loans available to SMEs in Singapore, and the government has even stepped in to ensure that funding is available to more small businesses. Being familiar with the available loan types enable you to take loans that are most suitable for you. Here’s a quick overview of the common types of SME business loans and their functions.

Here’s a quick summary of the different types of loans that are available for SMEs in Singapore.

Type of loan Purpose Maximum loan amount Interest rate (p.a.) Loan tenure
SME Working Capital Loan
  • To support daily operations or fund business expansion

$500,000

7 – 10%

1 – 5 years

Business First Loan
  • For start-up companies as young as 6 months to < 24 months old

$100,000

8 – 10%

1 – 5 years

Invoice Financing
  • To bridge cash flow gaps with immediate access to cash based on value of unpaid invoices

70 – 90% of pledged invoice amount

7.2%

Until payment of invoice (i.e. 30 – 120 days)

Business Term Loan
  • For business expenses and growth

$700,000

7 – 10%

1 – 5 years

Commercial Property Loan
  • To fund the purchase of a commercial, industrial or retail property
  • Available in fixed rate or SORA rate packages

Up to 80% of the property value

3 – 7%

Up to 30 years

Equipment and Machinery Loan
  • To fund the purchase of standard or sustainable equipment or machinery

Up to 90% of the valuation or purchase price of the equipment or machinery

4 – 6%

Up to 1 year, renewable on a yearly basis

Trade Loans
  • For inventory / stock financing
  • For revolving working capital or overseas working capital loan
  • Act as bank guarantee (capped at 2 years tenure)

$10,000,000 - until 31 March 2023

5 – 8%

Up to 1 year, renewable on a yearly basis

SME Sustainable Financing
  • To support SMEs in achieving sustainable goals
  • No need for certification under recognised sustainable schemes

Up to $5,000,000

5 – 8%

Up to 30 years



Things to Note Before Applying for a Business Loan in Singapore


Before you start applying for any business loans, you have to be sure of why you need to take up that loan – are the extra funds for business expansion, to ease cash flow gaps or for unexpected emergencies? Selecting a manageable loan amount that you can afford to pay off monthly is important to keep your business going and to have a healthy profit and loss statement as well. The following process is a rundown of how a typical business loan process works and some of the things you need to prepare at each stage.

  1. Typical business loan process and duration

    1. Applying and confirming application

      Apply at your convenience online using Singpass and receive your approval status instantly.
    2. Document required for business loan applications

      Here are the main documents needed for business loan applications:
      • ACRA business profile information
      • All Directors & Guarantors’ NRIC
      • Latest 6 Months bank statement (non-OCBC account holders)
      • Guarantor’s latest 2 Years NOA statement
    3. Disbursement of funds

      Funds are usually disbursed directly to your business bank account.
    4. Singapore Incorporated

      Your business needs to be incorporated in Singapore. To do so, you may register with ACRA of Singapore under the Companies Act, with a business name and local business address. All businesses need to be at least 30% owner by Singaporean or Singapore permanent resident.
    5. Revenue

      When applying for an SME business loan, the annual turnover of your business must not exceed S$100 million.
  2. Getting approval for business loan

    A good personal credit score can make good grounds for your application to be approved while a poor credit score might be a factor for a failed application. That said, a bad credit score does not always result in an automatic loan rejection.

    A credit score is only one of many factors that are considered in a business loan application. So even if you have a bad credit score, strengthening the other factors can help improve your odds of getting your loan approved. Here’s an overview of some things you can do to improve your chances of getting a loan approval:
    • Get a strong guarantor
    • Opt for as collateral loan
    • Demonstrate robust company financials
  3. Compare and pick the loan of your choice with OCBC Business Banking

    At OCBC, we are committed to helping our SME clients meet their business needs. Whether it’s getting through the COVID-19 pandemic, expanding the business, or funding daily operations, let OCBC help you finance your everyday business needs.

    Compare the different business loans with OCBC Business Banking and pick the loan of your choice. We are confident that our loans are competitive and can help your business’ financing needs.

Ready to Apply for a Business Loan for Your SME with OCBC?

Applying for a business loan with OCBC is simple and can be done in as little as five minutes online. Once your application has been processed, an update on the status of your loan will be provided to you in as fast as 5 minutes.

At OCBC, we are committed to serving your various SME financing needs.  This could be for expanding in domestic and international markets, purchasing fixed assets, or daily business operations. Regardless of your business needs, our wide selection of loan packages have been tailored to assist across all industries. Apply for an SME loan online or contact us today.

Disclaimer

You may be directed to third party websites. OCBC Bank shall not be liable for any loss suffered or incurred by any party for accessing such third party websites or in relation to any product and/or service provided by any provider under such third party websites.

The information provided herein is intended for general circulation and/or discussion purposes only. Before making any decision, please seek independent advice from professional advisors. No representation or warranty whatsoever in respect of any information provided herein is given by OCBC Bank and it should not be relied upon as such. OCBC Bank does not undertake any obligation to update the information or to correct any inaccuracy that may become apparent at a later time. All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.


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