Debt Financing

The interest rate and offers from various banks and credit products or facilities vary. A typical corporate term loan interest rate ranges from 3.5 per cent to 7 per cent per annum. In general, interest is established by the borrower’s credit score, the principal loan amount, and whether or not the loan is collateralized.

There are several available SME financing programmes managed by Enterprise Singapore, such as the SME Working Capital Loan and the Enterprise Financing Scheme.

SME loan applications typically take 2 to 4 weeks to process. Being familiar with the paperwork and application flow might speed up the processes. It is recommended to have seamless communication with the corporate banker to ensure all requirements are submitted and in order.
Upon receiving approval following the loan application process, it will take an additional one week for the bank to issue or disburse the loan. In an optimistic scenario, the expected turnaround time is between 3 to 5 weeks from application to receipt of cash.

Traditionally, most financiers or banks would require the submission of the following documents :

• Recent past six months of bank statements, 
• Recent past two years of financial reports, 
• The director’s NOA, 
• Recent account receivable and payable ageing list, 
• Goods and Service Tax (GST) returns, and 
• The most recent list of existing banking facilities.

Singapore local banks typically observe and gather the following information,

• Business Industry Nature : Specific industries have macroeconomic challenges and adverse attitudes and thus are more likely to default. Other times, the bank’s outstanding portfolio exposure may be targeted at a particular industry. These are significant elements that influence a bank’s decision and willingness.
  
  
• Years of Establishment : Before evaluating or extending a loan, most banks and financial institutions typically demand two to three years of operational experience. As a result, most new businesses are unable to get standard business financing. In Singapore, startup business loans are uncommon.
  
  
• Directors’ Personal Credit Bureau (CBS) : For all corporate or SME loan applications, banks will evaluate the director’s personal income and credit history. Most banks require directors to have a minimum personal income of $30,000.00 as disclosed in the Notice of Assessment. Personal credit bureau checks on the director will also be performed. 
  
  
• Business Performances and Financial Assessment (Cash Flow Assessment, Profitability etc.) :  Most banks will request an evaluation of a company’s financial records. When evaluating a financial report, banks will consider a variety of criteria. In general, if a business reports a net loss or has negative equity, convincing banks to provide a small business loan would be difficult.
  
  
• Loan Servicing Ability and Capacity : Bank statements of a business are critical for bank loan appraisal. Loan eligibility is influenced by factors such as the average cash float maintained, crediting and debiting amounts, month-end balances, and cash flow variations. Returned checks harm the evaluation of a company loan ; Banks place a high value on this since it demonstrates creditworthiness and slowness in managing cash flow.

• Business Term Loan: Most commonly obtained form of business loan. The principal loan size ranges typically between $50,000.00 to $300,000, depending on the borrower’s profile and credit-ability. Repayments are made in equal monthly payments over a period of three to five years.
  
  
• Trade Financing: Trade financing is a form of credit instrument adopted to support a company’s trade cycle. Banks often offer import financing as the principal trade finance product to local Singapore SMEs. Credit lines from revolving trade financing or facilities help businesses purchase inventories and raw materials from local international suppliers. Upon converting a Letter of Credit (LC), the average credit term/ period for Trust Receipts (TR) ranges from 90 to 120 days. 
  
  
• Receivable Financing: Banks and other financial institutions typically provide an advance to the company, range between 60% and 80% on the outstanding invoice issued to the debtor. Suitable for businesses seeking to ease their cash flow due to prolong credit and payment terms provided to their customers. However, factoring or receivable financing facilities will not be applicable for sales carried out in B2C format. Other key variables that affect approved financing advance includes Debtor’s Quality. Usually, larger advances are awarded to reputable companies and or government bodies. 
  
  
• Property Financing: Apart from the traditional mortgage loan approach for property purchases, business owners may also utilise and pledge existing property assets to the banks to ease their operating cash flow. Due to the nature of the loan structure, it is known to be the cheapest form of corporate financing. In the most typical scenario, banks usually grant up to 80% of the purchase value for residential property and up to 70% for industrial and commercial property. Regardless of property type, the remaining leasehold will also be an area of consideration. 
  
  
• Equipment Financing: Also known by many as hire purchase or equipment leasing. Banks and other financial institutions in Singapore help local businesses finance their purchase of fixed assets such as machinery, vehicles and office equipment. These fixed assets typically carry resale value. Because this is a secured loan with the equipment or machinery pledged as security, the proposed interest rates are often much lower than that of an unsecured loan. The financing bank normally finances 70% to 90% of the purchase price of the equipment, with average loan tenure range from one to five years.