Based on the article from Business Times dated September 2018, start-up businesses will have a challenging feat in trying to obtain a loan when they are less than 3 years in operations. What is not mentioned there is that even if your business is more than 3 years in operations, you may not be eligible for business loans in Singapore due to variety of reasons. Majority of the business loan applications get rejected by the financial institutions without ever knowing the reason(s).
Loans via Friends and Family
This is the easiest if not the hardest way to acquire funding for your business. Your family members and friends that trust your capabilities and believe in your business ideas might be willing to finance your startup or established business. These are the most common types of loans that are being used by startups or business is severe financial distressed that all Financier in the market are unable to help and the easiest to be obtained. In addition, it can be cheap (as close as $0 cost of borrowing) and flexible when it comes to repayments.
Even if you are dealing with your friends and family, it is best to have a formal written loan agreement, because, at most times, loans from friends and family may be done via verbal agreements – this can cause a tear in the relationship if things don’t go well.
By far, this is one of the lowest cost of financing your business. For property owners with total or partial equity in your commercial or residential property, you may be able to get a Property Term Loan or perhaps a long-term loan as a capital for your startup. Only Private properties or Commercial properties are eligible to get an equity or term loans in Singapore.
Just how much can loan can you borrow through a property term loan? Well, it would depend on your property’s current market value, your outstanding mortgage loan amount, and the CPF funds spent & CPF arrears accumulated if it is a residential property. Like any business financing, the risk is that the property may be possessed by the financier in the event of a default.
Peer-to-Peer (P2P) Lending
P2P companies emerged to the lending market with a strong finance power. They satisfy the needs to fill in gaps for the SMEs in Singapore and often offer a short-term loan tackling the cashflow gaps faced.
Unlike banks, they are more akin to supporting startups and companies less than 3 years in operations but comes at an interest rate higher than business financing with the bank. Typically, the borrowing period can be between 1 to 12 months.
It is very suitable for short term business boost such as to fulfill a purchase order so that the interest cost would not be eat into the margin of the or any sales order.
This is quite a new and innovative financing option especially for startups in Singapore. In fact, not just in Singapore, but most startup companies are now tapping into this type of loan or lending.
The great news is that you will be eligible for an application when you are 6 months and more in operation of your business just like P2P financiers.
There are several rising number of platforms that would match the type of investors your business is looking for to help in financing. In Singapore, P2P or Crowdfunding, borrowers can have their loan approved in as quickly as 3 days!
So, just how much can a company borrow? Well, this would depend on the review of your borrowing capacity and credit rating by the platforms. There are some platforms that would limit the funding of campaigns to protect their investor’s interest and reputations.
In business, there is no best way of approach due to the ever-changing business scenarios. To make the right approach and right decision for your current business stage, it is still better to seek advice or consult a Business Consultant in Singapore if you do not already have one.
Businesses can tap into venture capitalists because these are investors who are looking for a high ROI – at about 25% and up within a period of 2-5 years. However, there are very few of these startups that can ensure the rate of return being expected of them from venture capitalists. Most of these venture capitalists usually put their money on IT and biotechnology as it has a guaranteed high ROI.
Another advantage of dealing with venture capitalists is that they offer advice on how to increase their business’ profitability, how to better manage the business operations, and be able to help startup owners connect with experts that can provide valuable inputs.
Just to note, the venture capital industry in Singapore is small compared to the Western and other Asian markets. However, it is displaying a steady growth.
Now, angel investors are wealthy individuals that can provide both financing and business expertise for a startup in exchange for equity. So, what is the difference between angel investors and venture capitalists? Well, Angel investors have a higher appetite for risk and do not have a high demand on the stratospheric rates of return, as opposed to the venture capitalists. In addition, angel investors usually have an active role in the business.
Although angel investors are not made up of only private individuals, they can be a company or group of angels as well. For individual angel investors, they usually invest around S$25K to S$100K, while for the group of angels, they are willing to invest in large amounts collectively.
Finnex Pte Ltd is the only consultancy that assist business owners to structure the most suitable financing the business requirements. We have negotiated more than tens of millions for countless SMEs in Singapore within our network of 47 Financiers.
Contact us today and one of our friendly consultants will reach out to you within 1 to 2 working days.