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What is a Startup Business Loan?

business startup loan

A startup business loan is a term loan meant specifically for  startups that do not have much of a business history yet. Other than a few institutional lenders that are offering small business financing products, there aren’t many business startup loan options in Singapore.

Recognizing this problem in the last few years, the Singapore government has made concerted efforts to launch a number of funding initiatives to support the rise of startup ventures in the country.

Some of the start up SME loans and grants in the market include the SME Micro Loan, Start Up Business Loan for Medical Professionals,  OCBC Business First Loan, Early-Stage Venture Funding, and the Capability Development Grant.

 

The table below shows the all the start up business loan options that are available to startups in Singapore:

Startup Loan Product Interest Rate Maximum Loan Amount Repayment Period
SME Micro Loan 3.5 - 4.5% p.a Up to S$100,000 1 - 5 years
SME Venture Loan 2.5% - 11% p.a Up to S$5 million 3 - 5 years
First Business Loan 3.2 - 4.5% p.a Up to S$30,000 1 - 5 years
Startup Loan for Medical Professionals, Architects and Engineers 2.5 - 4.5% p.a Up to S$500,000 1 - 5 years
Startup Loan for Medical Doctors and Dentists 2.5 - 4.5% p.a Up to S$500,000 1 - 5 years
Personal Loan for Business 6 - 9% p.a Up to 12x of monthly income 1 - 5 years
Crowdfunding: Unsecured Loan 12 - 18% p.a Up to S$200,000 3 - 24 months
Crowdfunding: Invoice Factoring 1 - 1.5% per month Up to 80% of invoice value 30 - 120 days

And the table below shows all the financial institutions/banks in Singapore that offer business loan products for startups:

Participating Financial Institutions Start Up Loan Product
DBS bank SME Micro Loan
Maybank SME Micro Loan
OCBC First Business Loan
UOB SME Micro Loan
Standard Chartered Bank SME Micro Loan
RHB Bank SME Micro Loan
IFS Capital SME Micro Loan + Invoice Factoring (Bundle)
Orix Leasing Start Up Loan for medical professionals, architects, and engineers
Ethoz Capital Start Up Loan for medical doctors and dental surgeons
Minterest Business Term Loan
Invoice Factoring
Validus Capital Business Term Loan
Invoice Factoring

Business Startup SG Loan Scheme Infographic

startup business loan infographic

How Do Small Business Startup Loans Work?

Let us dive in to have a better understanding of a few of the most popular business financing options for startups in Singapore.

1. Enterprise Singapore: SME Loan Schemes

Enterprise Singapore is a government agency that seeks to support enterprise development in Singapore.  The agency has initiated a number of start up business loan schemes that can help to fund startups through different stages of growth.

Below are the two most popular SME loan schemes for startups:

In order to obtain any of these government assisted SME loans, your business will have to pass the eligibility criteria, which might vary between participating financial institutions and banks.

2. Start Up Business Loan for Medical Professionals

Offered by only two financial institutions in Singapore, the startup loan for medical professionals seeks to provide the medical doctor or dentist with financing to set up a private practice.

In most cases, the start up business loan can also be accompanied by an equipment loan to finance the cost of all medical equipment.

To qualify for the business loan, the medical professional will have to meet the following criteria:

  • Singapore Citizen or PR
  • Have a healthy personal credit history
  • Possess a valid medical license
  • Registered with Singapore Medical Council

For medical professionals who are permanent residents in Singapore, approval chances are significantly higher if you have ownership of a residential property.

3. Equity Financing

Raising funds through the sale of equity in your startup business is a popular method of raising funds for working capital.

You need to sell your business idea and convince prospective investors that your business will make money for them.

To accomplish this, you will need to have an innovative business idea, a solid business plan, justifiable cash flow projections, an effective working team and a really good sales pitch.

In most cases, investors earn their returns via dividends on the shares they hold in your company. This means that their returns will be determined by the profitability and success of your business.

startup business loan

4. Venture Capital Funding

A typical venture capital is usually a fund that invests in start up businesses. The general idea for any venture capitalist is that the potential upside from a successful start up business can outweigh the limited downside – which is usually a small initial investment.

With venture capital funding, investors tend to want to be involved in the business, which has both pros and cons.

While a venture capital investor can offer much expertise and experience in running a business, this can sometimes lead to a control struggle.

Venture Capital firms usually look to make a profitable exit from their investments within a period of 2 to 5 years.

In recent years, there has been a growing trend in venture capital firms to place their focus on high growth tech startups, where returns could potentially be multiples of an initial capital injection.

More About Funding for Startups

While the government has made concerted efforts to encourage lending to startups in Singapore, the truth is that access to working capital still remains a constant struggle for most new entrepreneurs in Singapore.

Most banks and financial institutions tend to be apprehensive to the idea of lending to new ventures, and understandably so.

The risk that comes with lending to a startup is exponentially higher than with lending to an already established business.

Banks rely heavily on the financial track records of a company to determine credit worthiness. For a new business with almost no financial history, it becomes a challenging task for any lending institution to gauge the credit worthiness of the company.

Therefore, for most new entrepreneurs, it is often easier to raise funds via equity financing or simply borrowing from family and friends.

The Money Problem That Most Startups Face

One of the most commonly faced problems of any startup is a shortage of capital. Cash flow can make or break a company.

To add to the problem of insufficient funds, these startups often have no way to get access to additional capital. When this happens, company operations are forced to halt, thus ending a dream before it even began.

Even startups that were able to successfully raise sufficient seed funding often run into capital shortage issues after a period of time.

For start up ventures to thrive, access to debt financing is critical. As such, SPRING Singapore (now known as Enterprise Singapore) was set up to help solve this problem.

Tailored to meet the needs of a start up, the business loan for startups is especially popular among medical doctors and dental surgeons who want to set up a private practice.

More than helping to kick-start a business, the start up financing solution has also helped many entrepreneurs to:

  • Improve cash flow
  • Enhance financial budgeting
  • Seize expansion opportunities