A guide to the best SME loans in Singapore 2023

What are SME business loans?

Small business loans, also referred to as SME business loans, encompass the different financing options offered to small-and-medium-sized businesses.

These loans can be for short-term working capital needs or longer-term fixed asset purchases. The loan terms for each financing option can also vary.

Debunking 3 myths about SME loans

Myth 1: SME loans are meant for large, well-established companies.

While more established businesses may have greater needs for financing, there are SME loans specifically targeted at new start-ups with a short track record. At the same time, eligible Singapore companies can also tap on certain government-assisted loans that may not even require any collateral.

Myth 2: SME loans are long-term loans, which burden your company over a long time.

Unlike personal loans or mortgage loans, which may come with a fixed minimum repayment period, certain SME loans like invoice financing or overdraft facilities can be for short-term needs.

Furthermore, with invoice financing, the loan amount, which is backed by an unpaid invoice, is most likely to be paid between 30 and 120 days. This lowers the risk of borrowing as you have better cash flow visibility in the short term.

Myth 3: SME loans have a tedious application process and long waiting time.

As with any application, you need to submit the relevant documents. However, most loan applications can be done online at your convenience these days.

Depending on the type of loan, you may be able to submit your loan application in just 5 minutes. Once approved, your loan would be disbursed into your business account.

7 common types of SME loans in Singapore

There are many different types of SME loans that cater to the different operational needs. 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.

1. SME Working Capital Loan

   The SME Working Capital Loan (WCL) is a government-assisted loan financing scheme under the Enterprise Financing Scheme (EFS-WCL). With the government co-sharing at least 50% of the risk, it is made available to SMEs across all industries to help them get access to working capital for their businesses.

   The EFS-WCL has been enhanced to allow a higher borrowing cap of S$500,000, from the usual S$300,000 cap until 31 March 2024. For businesses who have hit the financing cap for WCL, you may want to consider taking up a term loan, such as the OCBC Business Term Loan that provides financing of up to S$400,000, which can be repaid over a period of 5 years. Stay on top of rising costs with this loan to fund day-to-day operations or business expansion.

2. Start-up Business Loan

   The start-up business loan, also known as the "Business First Loan", is intended to provide funding to (young) businesses who are six months up to two years into operations. Such loans usually come with a smaller loan amount cap of $100,000 and are suitable for young companies that need funding for their business capital.

3. Invoice Financing

   Invoice Financing is a form of short-term loan that is backed by your customer or supplier invoices. Businesses can convert up to 80% of their unpaid invoices into cash and get access to immediate cash flow. Moreover, you will only need to pay interest for the amount that you use.

4. Commercial Property Loan

   Companies that want to buy new commercial properties, such as your office space or shop, can use a Commercial Property Loan to finance their purchase. Both the fixed rate and SORA rate packages are also offered to SMEs.

   Additionally, businesses that intend to renovate or refurbish their commercial properties to be more energy efficient could consider the Green Commercial Property Loan. To qualify, your commercial property can either be in a BCA Green Mark Gold (Plus) or Platinum building, or you can request for an assessment on how you can retrofit your property to contribute to a greener built environment.

5. Equipment and Machinery Loan

   Another type of fixed asset loan that SMEs can apply for is Equipment and Machinery Loans. The loan supports the purchase of both new and used assets across various industries for automation and upgrading purposes and is available under EFS SME Fixed Assets scheme where the government co-shares at least 50% of the risks. SMEs could also enjoy lower financing rates if the equipment or machinery are sustainable assets that contribute to a greener economy, like electric forklifts, trucks, and buses. Similarly, as with all loans under the EFS schemes, businesses may need to fulfil the criteria set by Enterprise Singapore.

   Furthermore, local SMEs in the food services, food manufacturing, and retail sectors can tap on the Energy Efficiency Grant that provides up to 70% funding support, capped at $30,000 per company, in conjunction with the loans to cover the purchase of energy-efficient equipment.

6. Sustainable Financing

   SMEs who aspire to go green, operate in the sustainability sector or work on green projects such as, developing environmentally sustainable products, growing environmentally sustainable agriculture, creating nature based solutions and engineering services, to name a few, can receive funding supporting by applying for the SME Sustainable Financing loan.

   Getting a green loan does not require any certifications and can help to boost their brand value and image. SMEs can work together with the OCBC team to achieve their sustainable goals.

   SMEs can also tap on another government-assisted loan scheme, the EFS-Green. The scheme was introduced to help businesses that are Project Developers, System Integrators and Technology & Solution Enablers access better green financing for projects classified as part of the Enterprise Sustainability Programme.

7. Trade Loan

   The government also provides Trade Loan (TL) financing under the Enhanced Enterprise Financing Scheme. This scheme has been extended to 31 March 2024, with a higher maximum loan amount of S$10 million compared to the previous limit of S$5 million. Companies that meet the eligibility set by Enterprise Singapore can use the loan to finance trade needs, including using it for inventory/stock financing, overseas working capital loans and as a bank guarantee (capped at 2 years of tenure) for both domestic and overseas transactions.

Which SME loan is best for you?

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

Most businesses may require short-term financing, either for working capital requirements or to take advantage of unexpected business opportunities. For such short-term loans, businesses may consider the SME Working Capital Loan or the Business Term Loan which can be applied online.

Another short-term financing option that businesses can consider is invoice financing, which allows businesses to receive an advance of between 70% and 90% of their pledged unpaid invoices. This could be a favourable short-term financing facility for businesses that have a significant portion of their assets “locked up” in receivables. For example, with OCBC Short-term Financing, you would only need to pay for what you use at only 0.6% per month.

Aside from these short-term financing loan options, new businesses that need capital to fund their operations can consider applying for the Business First Loan, which offers a loan amount of up to S$100,000. For businesses that are intending to finance their purchase of fixed assets like commercial properties or equipment, they can also consider the Commercial Property Loan or Equipment and Machinery Loan.

How to apply for an SME Loan in Singapore?

Once you have identified the loan scheme that best suits your company’s needs, the next step would be to prepare the necessary documents. Some of these documents include:

• Company’s bank statements and financial reports
• Director’s IC copy and Notice of Assessment
• Proof of director’s personal income
• GST Form 5
• Debtors and creditors ageing list

With OCBC, the loan application can be done easily online in as little as 5 minutes. Loan applications are processed quickly and you will receive an update on the loan status in as fast as 5 minutes.

At OCBC, we are committed to serving your various SME financing needs. This can be for your daily operations, purchases of fixed assets, or expansion in local and overseas markets. Regardless of your needs, our wide selection of loan packages have been tailored to assist across all industries. Apply for an SME loan online today.