What is an Unsecured Business Loan?

Alevin Chan

Alevin Chan

Last updated 06 June, 2024

Unsecured business loans cater to the needs of SMEs and small businesses in Singapore, acting as convenient, flexible and affordable financial solutions for companies seeking additional funding for various purposes. Learn how such business loans work. 

Unsecured business loans are loans offered to business owners who are seeking a means to fund their business operations. They come in many forms, catering to various financial needs of small businesses and SMEs in Singapore. 

Being unsecured, such business loans are offered without the need for collateral to back the loan. As no collateral is required, unsecured business loans pose a higher risk to the lender. Thus, unsecured business loans have a higher interest rate and more stringent requirements, compared to secured loans

Let’s have a deeper look at unsecured business loans, how they work, and how to apply for one. 

Table of contents


Understanding unsecured business loans

What can unsecured business loans be used for?

Unsecured business loans can be used to meet the financial requirements of a small business or SME. 

This can range from paying employee salaries to expanding business operations, setting up new outlets or offices, research and development of new products, marketing campaigns to drive sales, purchase of commercial property, or even consultancy and certification for environmental, social, and governance (ESG) purposes. 

Unsecured business loans are highly flexible, as business owners are at liberty to use the funds provided at their own discretion. Furthermore, unsecured business loans can be specialised towards certain objectives and uses, giving companies and SMEs even greater choice in financing their business operations. 

What type of unsecured business loans are there?

Business term loans 

The most common type of unsecured business loans, business term loans offer fixed monthly repayment terms and a choice of loan tenures, typically ranging from one to five years. The predictable nature of fixed monthly repayments benefits businesses and SMEs, allowing them to effectively budget for their loan repayments without surprises. 

Business term loans are widely available under the SME Working Capital Loan scheme, which is a government-assisted financing scheme with risk-sharing by Enterprise Singapore of 50%, and up to 70% for younger businesses. SME Working Capital Loan is offered by several retail and commercial banks in Singapore. 

Besides SME Working Capital Loan, many banks also offer their own business term loans under various names. 

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Business green loans

SMEs wishing to earn ESG points and eco-friendly certification can tap on business green loans to finance the cost of consultancy, business process improvements, development of sustainable products and practices, and related needs. 

This type of unsecured business loan can only be used for the stated purposes and aims, and lenders may require proof and additional documentation as part of the application process. 

Fixed asset loans

SMEs may require commercial buildings, equipment, vehicles and vessels for their business operations. These items are known as fixed assets, and businesses can apply for fixed assets loans to fund their purchase and construction. 

Fixed asset loans for vehicles and vessels may be capped at 70% to 90% of value, while fixed asset loans for property like offices and factories are usually offered up to a fixed amount. 

Supply chain finance

Supply chain finance helps SMEs improve cash flow by unlocking liquidity along the supply chain. One way this is accomplished is by allowing SMEs to obtain timely payment from a bank (the provider of the supply chain finance solution) based on approved payments from clients. 

In another scenario, SMEs can set up a supply chain finance arrangement to unlock their working capital by having the bank pay for purchased goods and services first. The company then pays the bank on the pre-agreed payment date. 

Venture debt financing

In venture debt financing, the objective is to extend the working capital runway with cash injections after successful capital-raising rounds. This allows SMEs to continue iterating on their business model and achieve growth milestones. 

This type of unsecured business loan is typically reserved for tech start-ups that have won the backing of pre-screened venture capitalist partners. The company should also have achieved a minimum sum of equity funding on their own. 

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Applying for unsecured business loans

Where can you get an unsecured business loan?

Unsecured business term loans are readily available from several retail and commercial banks, as well as financial institutions in Singapore. These entities have agreed to administer the SME Working Capital Loan scheme in partnership with Enterprise Singapore, which is set to cater to the needs of local SMEs and small businesses. 

In addition, several banks also offer their own unsecured business loan packages, providing another avenue for SMEs to obtain the funding they need.

What are the eligibility criteria for unsecured business loans?

Typically, companies have to fulfil the following when applying for unsecured business loans:

  • Business registered and operating in Singapore
  • Period of business operation ranging from 6 months to 2 years, depending on the type of business loan requested
  • Local shareholding of 30% or more. That’s to say, the company must be at least 30% owned by Singporeans or PRs.
  • Limits on turnover and staff strength:
    • Annual sales turnover of not more than S$500 million
    • Revenue not more than S$100 million
    • Employment of not more than 200

Are there alternatives to unsecured business loans?

Yes, if SMEs do not wish to take an unsecured business loan, they may opt for a secured business loan instead, 

A secured business loan requires the pledging of collateral to back the loan. In the event of default where the SME does not repay the loan, the debtor has the right to seize the collateral and sell it off to recoup the loan. 

Only company assets are allowed to be used as collateral in secured business loans. Some examples include commercial real estate, equipment and machinery, inventory and accounts receivable.

The inclusion of collateral allows secured business loans to have lower interest rates. SMEs may find secured loans easier to obtain since credit risk is reduced for the lender. 

Also read: Best Small Business and SME Loans in Singapore 2024

Secured vs unsecured business loans

 

Unsecured business loan

Secured loan

Collateral 

Not required.

Required. Company assets, including property, equipment, inventory and accounts receivable, may be used as collateral.

Interest rate

Higher due to credit default risk.

Lower, as credit risk is reduced.

Best for

SMEs with good ability to repay loans but with little or insufficient collateral.

Companies that want to save on loan interest. 


Businesses that are unable to qualify for an unsecured loan but possess sufficient assets for collateral.

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Frequently Asked Questions (FAQs)

What is an unsecured business loan?

An unsecured business loan is a loan that is offered to a company without requiring collateral. Unsecured business loans have higher default risk, and thus have higher interest rates to make up for the risk.  

What is the maximum amount of an unsecured business loan?

The maximum amount of an unsecured business loan varies depending on what type of loan it is. For unsecured business term loans from banks, the maximum amount SMEs can borrow ranges from S$100,000 to S$700,000.

What is an unsecured loan?

An unsecured loan refers to any loan that is offered without collateral. Unsecured loans have stricter requirements and higher interest, due to the heightened credit risk they pose.

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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.

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