What are the Different Types of Loans for Businesses?

Alevin Chan

Alevin Chan

Last updated 05 June, 2024

SMEs and small businesses have a wide variety of financing options, including different types of loans for business needs. Learn about the types of loans businesses can choose from and how to apply for them.

When it comes to business financing, there are several options that go beyond instalment term loans. Indeed, entrepreneurs, SMEs and small businesses can choose from different types of loans for business needs, including secured loans, green loans, fixed asset loans and lines of credit. 

Let’s take a closer look at the different types of loans for businesses available in Singapore.

Table of contents:


Overview of different types of loans for businesses

There are certainly many different financing schemes and types of loans for businesses, ranging from micro-loans for startups to mergers and acquisitions loans catered for companies looking to expand their presence internationally. 

To keep the discussion concise, we will be looking at three common types of loans for businesses – government-assisted funding, bank business loans and SME financing platforms. 

Government-assisted Enterprise Financing Scheme

The first type of business loans are grouped under the Enterprise Financing Scheme, which is a government-assisted funding programme administered by Enterprise Singapore. It covers seven different areas of funding, as summarised in the following table. 

The key difference that sets these loans apart is that the government offers 50% risk-sharing, up to 70% for younger enterprises. This reduces the risk to lenders, reducing friction in the loan application process. Note that borrowers are still 100% liable to repay the loan. 

Name of loan

Maximum loan amount

Purpose

SME Working Capital Loan

S$500,000 

SME financing for operational cashflow needs

SME Fixed Assets Loan

S$30 million 

Investments in domestic and overseas fixed assets, including equipment and machines for automation and upgrading, and factories and business premises 

Venture Debt Loan 

S$8 million

For high-growth startups that do not have significant assets to be used as collateral under traditional bank lending

Trade Loan

S$5 million

To finance trade needs, such as inventory/stock financing, revolving working capital, bill factoring, or Banker’s Guarantee

Project Loan 

S$15 million

For fulfilment of secured overseas projects, covering working capital, property, equipment and guarantees 

Mergers & Acquisitions Loan 

S$50 million

For the acquisition of local or overseas target enterprises

Green Loan

S$3 million

Developmental capital for expenses related to green initiatives, such as new product development, technology development and consultation and certification fees


Green loans are also available for any of the preceding six loans if green-related initiatives are involved, with loan quantums unchanged for each of the six loans

Eligibility for Government-assisted Enterprise Financing Scheme Loans

To qualify for these business loans, SMEs should fulfil the following:

  • Business entity registered and operating in Singapore
  • Company has at least 30% local shareholding held directly or indirectly by Singaporean(s) and/or Singapore PR(s), determined by the ultimate individual ownership.
  • Company has a Group Annual Sales Turnover not exceeding S$500 million
  • For “SME Working Capital” and “SME Fixed Assets”, an SME is defined as having a group revenue of up to S$100 million or a maximum employment size of 200 employees.

PL_Vertical_KV_Wedding_BLOGARTICLE_800x250

⚡#ScoreBigSummer Flash Deal⚡: Be one of the 20 winners with the most inspiring summer stories and SingSaver will get your interest covered for 2 years (up to S$1,200 ecapitaVoucher). Simply apply for any participating loan product and share with us why you're taking a loan this summer. Valid till 22 July 2024. T&Cs apply.

Singsaver Exclusive Offer: Receive the following rewards when you apply for an SCB CashOne Personal Loan.

SCB_PL_TIERED_KV1_8JUL_BLOGARTICLE_800x250

New Customers: Receive an Apple iPhone 15 Pro 128GB (worth S$1,664.25) or a Dyson V12 Detect Slim Fluffy (worth S$969) or an Apple iPad Air 11" Wi-Fi 128GB (worth S$899) or a Dyson V8 Slim Fluffy (worth S$509) or a Xiaomi TV A Pro 43 (worth S$479) or up to S$1,220 Cash upon loan approval when you apply for a minimum loan of S$8,000. Valid till 22 July 2024. T&Cs apply.

Existing Customers: Receive up to S$520 cash upon loan approval when you apply for a minimum loan of S$8,000 with a tenure of 3 to 5 years. Valid till 22 July 2024. T&Cs apply.

Plus, enjoy up to S$4,100 cashback when you apply for a min. loan of S$12,000 with a tenure of 3 to 5 years. Valid till 30 September 2024. T&Cs apply.


Bank business loans 

A second type of business loan that is readily available is a bank business loan. These are available for a variety of needs, including startup funding, working capital, or purchase of property and equipment. There are even bank loans that allow you to borrow against the value of real estate that your company owns. Here are some of the most common types of bank business loans.

Entrepreneur or micro-loans

Micro-loans are small business loans, usually up to S$100,000, ment to help startups or entrepreneurs get their business off the ground. These loans are offered on a unsecured basis, and are open to fledgling business ventures with less than a year in operation. 

Business term loans

Business term loans offer SMEs lump-sum funding that is repaid in fixed monthly instalments over a predetermined duration. Both the principal and interest charges are repaid in each instalment, which are due on the same date every month. 

The fixed and stable nature of business term loans makes it easy for SMEs and companies to keep track of their loan obligations, which is a leading reason for their popularity. Bank business term loans are available from S$100,000 to S$700,000, serving a wide range of different enterprises. 

Business green loans

Many banks also offer business green loans that companies can tap into to finance ESG certification, as well as the associated business changes that accompany it. For instance, a plastics products company may decide to invest in advanced plastic recycling equipment to improve post-consumer yield in their products, making their products carbon-neutral. 

To carry out this initiative, the company could apply for a green loan to fund equipment purchases, staff training, and consultancy services. 

Fixed asset loans

Fixed assets loans are designed for SMEs to purchase commercial real estate, equipment, vehicles and vessels necessary to develop their business operations. These expenditures are regarded as fixed assets, and may be funded with a fixed asset loan from a bank. 

For vehicles or vessels, a bank fixed asset loan may offer a loan-to-value ratio of up to 70% to 90% of value. Meanwhile, fixed asset loans for offices and factories are capped at a fixed amount. 

Eligibility for bank business loans 

Eligibility requirements vary according to the type of bank business loan you are applying for. However, in general, companies should be:

  • Registered and operating in Singapore
  • With local shareholding of at least 30%

Please refer to the product pages of specific bank loans for further eligibility requirements. 

PL Vertical_KV_Travel_BLOGARTICLE_800x250

⚡#ScoreBigSummer Flash Deal⚡: Be one of the 20 winners with the most inspiring summer stories and SingSaver will get your interest covered for 2 years (up to S$1,200 ecapitaVoucher). Simply apply for any participating loan product and share with us why you're taking a loan this summer. Valid till 22 July 2024. T&Cs apply.

SingSaver Exclusive Promotion: Enjoy the following rewards when you sign up for an HSBC Personal Loan:

Receive an Apple iPhone 15 Pro 128GB (worth S$1,460) or an Apple iPad Air 13" Wifi 128 GB (worth S$1,199) or a Xioami TV Q2 65" (worth S$654.30) or an Ergotune Joobie (worth S$599) or a Dyson V8 Slim Fluffy (worth S$509) or S$1,000 cash when you get approved for a loan of min. S$10,000 with tenure of 3 to 5 years. Valid till 22 July 2024. T&Cs apply.

Plus, get an additional S$50 eCapitaV when you apply for the loan and complete the SingSaver Rewards Redemption form. Valid till 22 July 2024. T&Cs apply.


SME financing platforms

Besides business loans offered under the Enterprise Financing Scheme, and commercial loans from banks, small businesses can also access business funding from SME financing platforms. 

Such platforms tend to offer different types of loans for businesses, and you can make enquiries to find out more about a particular business loan or financing scheme you are interested in. 

Three of the most popular SME financing platforms include:

  • Funding Societies, a debt investment platform that offers unsecured business loans, invoice financing, revolving credit lines and secured property financing. The latter is a financing scheme that lets you borrow against the value of properties owned by the business.
  • Captall, a business loan provider that offers business credit lines, working capital loans, expansion financing, and auto financing. This platform is suited to micro-enterprises and startups, as companies with annual revenue at least S$100,000 are eligible for loans.
  • Validus, a digital financing platform for small businesses and SMEs that specialises in small business working capital loans of up to S$150,000, as well as invoice financing of up to S$1 million.  

Things to note when applying for a business loan in Singapore

Interest rates

Business loans often only display their nominal or advertised interest rate. However, to know the true cost of your loan, you will need to look at the Effective Interest Rate (EIR). This rate accounts for other related business loan expenses such as processing fees, annual fees or more. 

Fees and charges

It is common for lenders to levy additional fees and charges on a business term loan. Some of the typical ones include: 

  • Processing fee. This is a one-time charge that is levied to process the business loan. It may be a percentage of the principal amount or a fixed fee. 
  • Annual fee. Some lenders may also include an annual fee, which is levied throughout the duration of the business loan. 
  • Late payment fees. This is charged every time a payment is late or made after the due date. 
  • Late interest charges. Overdue loan amounts may be subject to additional interest, which may be compounded daily until paid up. 
  • Early repayment fee. This is a fee charged should you repay your business loan early. Typically, early repayment fees are calculated on the outstanding balance repaid early, plus a fixed amount. 

PL_Vertical_RENO_BLOGARTICLE_800x250

⚡#ScoreBigSummer Flash Deal⚡: Be one of the 20 winners with the most inspiring summer stories and SingSaver will get your interest covered for 2 years (up to S$1,200 ecapitaVoucher). Simply apply for any participating loan product and share with us why you're taking a loan this summer. Valid till 22 July 2024. T&Cs apply.

SingSaver Exclusive Promotion: Enjoy the following rewards when you sign up for a CIMB Personal Loan:

CIMB _PL_TIERED_BLOGARTICLE_800x250

Receive an Apple iPhone 15 256 GB (worth S$1,427.50) or an Apple iPad Air 11" Wi-fi 256 GB (worth S$1,049) or a PlayStation 5 (Disc Version) (worth S$799) or a Dyson AM07 Tower Fan (worth S$459) or up to S$1,220 cash when you get approved for a CIMB Personal Loan with a min. loan amount of S$8,000 and tenure of 3 to 5 years. Applicable to new customers only. Valid till 22 July 2024.  T&Cs apply.


Alternative options to business loans

Line of credit 

A line of credit puts a certain amount of funds at your disposal, which you can draw down as required. Along with a monthly or annual fee, you only pay interest on the amount you have drawn down and can repay your debt at any time and in any amount. 

This makes lines of credit more versatile than a business loan. You do not have to saddle your company finances with an entire sum of debt, and sparing use will result in less interest charges in total.

Invoice factoring

Invoice factoring lets you “borrow” against the value of invoices issued but not yet paid. This lets you unlock cash flow to meet urgent needs instead of being stuck waiting for payment from clients, some of whom can have long payment cycles. 

In exchange for getting paid early, businesses pay a factoring fee, which is typically between 1% to 5% of the invoice's total value. 

Personal loan

If all else fails, you can try getting a personal loan to tide your business over for the short term. Do be aware that personal loans may not be able to furnish as much as you need due to regulatory caps on how much you can borrow. 

Also, take care not to miss your personal loan payments and damage your credit score. Should this happen, you may face heightened difficulty applying for further business loans; lenders may not look kindly upon the fact that the owner of the business is unable to manage their personal loan obligations. 

PL_Vertical_MAIN_BLOGARTICLE_800x250

⚡#ScoreBigSummer Flash Deal⚡: Be one of the 20 winners with the most inspiring summer stories and SingSaver will get your interest covered for 2 years (up to S$1,200 ecapitaVoucher). Simply apply for any participating loan product and share with us why you're taking a loan this summer. Valid till 22 July 2024. T&Cs apply.

SingSaver Exclusive Promotion: Enjoy the following rewards when you sign up for a UOB Personal Loan:

UOB_8 Jul_KV1_BLOGARTICLE_800x250

Receive an Apple iPhone 15 128GB (worth S$1,311) or an Apple Bundle: Apple iPad 10th Gen 10.9 wifi 256 GB + Apple Pencil (USB-C) (worth S$878) or Dyson Airwrap™ multi-styler and dryer (Complete) (worth S$859) or a Morning Coffee Machine + 20 Capsules Bundle (worth S$684) or a Sony WF-1000XM5 (worth S$429) or up to S$1,220 cash when you get approved for a UOB Personal Loan with a min. loan amount of S$8,000 and tenure of 1 to 5 years. Applicable to new customers only. Valid till 22 July 2024. T&Cs apply.


Frequently Asked Questions (FAQs)

Which loan is best for business?

The SME Working Capital Loan offers 50% to 70% risk-sharing by the government of Singapore, making it among the easiest business loans to qualify for. Hence, small businesses should place this loan among their top choices when seeking business financing. 

Also read: Best SME Grants in Singapore

What is the most common type of business loan?

The most common type of business loans are likely to be business terms loans. These are unsecured loans with a fixed monthly payment structure, making it easy for SMEs to manage their cashflow and loan repayments.

What is the best loan to start a business?

If you’re looking to start a small business without high overhead costs or large-scale operations, a micro-loan or a startup loan may be suitable. These loans grant small amounts from S$10,000 to S$100,000, so you can borrow only what you need instead of taking on excessive borrowings as you would with larger business loans.

An ex-Financial Planner with a curiosity about what makes people tick, Alevin’s mission is to help readers understand the psychology of money. He’s also on an ongoing quest to optimise happiness and enjoyment in his life.

FINANCIAL TIP:

Use a personal loan to consolidate your outstanding debt at a lower interest rate!

Sign up for our newsletter for financial tips, tricks and exclusive information that can be personalised to your preferences!