Best SME Business Loan Interest Rates: A Comparison Guide (2024)

April 26, 2024

Singapore’s economic framework heavily relies on its 299,800 SMEs, which constitute 99% of all enterprises. These entities face rising business costs, labor shortages, and global economic challenges, making loans crucial for their survival and growth.

To address these issues, 72.2% of businesses are affected by escalating costs and staffing shortages. Budget 2024 introduces tax rebates and rental reliefs to support SMEs. Additionally, there’s a call for prolonged access to lower-cost financing.

This guide provides strategies for SMEs to secure favorable loan rates and navigate financial challenges.

Understanding Business Loan Interest Rates

When understanding business loan interest rates, it’s essential to get acquainted with some key terms and how these rates come to be.

Key Terms to Know

Effective Interest Rate (EIR): This reflects the true cost of borrowing and includes fees like processing and administrative charges. It takes into account compounding periods — the frequency with which interest is added to the principal. More frequent compounding results in a higher EIR.
Nominal Rate: Often the advertised rate, which does not include additional fees or the effect of compounding.
Flat Rate: A method of calculating interest payments based on the initial loan amount, without reducing the balance as payments are made.

Calculating Interest Rates

Interest rates are influenced by various factors, including the bank’s assessment of risk, the presence of collateral, and market conditions. For example, secured loans typically feature lower interest rates compared to unsecured ones due to the presence of collateral which reduces the lender’s risk.

When you see a rate advertised, it’s the nominal rate, which doesn’t always reflect the true cost of the loan — the EIR will give you a more accurate picture. It’s higher than the nominal rate as it encompasses additional costs such as processing fees and administrative fees and considers the impact of compounding periods.

The EIR can be calculated with this formula:

1 + (simple interest rate / number of compounding periods) ^ (number of compounding periods) – 1

For a simpler and quicker approach, you can use the business loan calculator to calculate your monthly installment and total interest.

Consider this example: Let’s say Ms. Tan applied for a business loan amounting to S$100,000 at 7% interest rate and payable within 60 months. She will need to pay S$1,980.12 per month and her total interest will amount to S$18,807.22.

Types of Business Loans Available in Singapore

Best Government-Backed Loans

In this article, we’re going to cover the differences between the Temporary Bridging Loan and the SME Working Capital Loan, how they differ, what you’ll need to provide, and how much you’ll need to qualify for either loan.

These government loan options are some of the best SME loans that can be used to fund your business.

Loan

Maximum Loanable Amount

Loan Tenure

Interest Rate

Government Risk Share

SME Working Capital Loan

Up to $500,000 / borrower

(enhanced permanently from 1 April 2024 onwards)

5 years

Subject to PFIs’ assessment of risks involved.

50%. 70% risk-sharing may be offered to early-stage companies.

Temporary Bridging Loan

S$1 Million / borrower

5 years

Capped at 5% p.a.

70%

1. SME Working Capital Loan: SMEs Needing Extra Funds for Daily Operations and Boosting Cash Flow

A scheme designed by Enterprise Singapore, a Singapore government agency that champions enterprise development and is responsible for business loans in Singapore like the Fixed Assets Loan. It is meant to fulfil the need for businesses that do not need access to debt capital or raise equity finance from venture capitalists but still require a working capital loan.

Like the SME micro loan, this loan provides business financing for operational cash flow needs such as inventory replenishment, raw materials, and unfinished goods purchases, payroll payments, etc. These are common in small-scale manufacturing or service business enterprises.

The maximum loan amount is up to $1M per borrower, with a repayment period of 5 years. Risk-sharing is usually 50%, but early-stage companies may receive a 70% offer. Interest rate is subject to Participating Financial Institutions (PFIs) risk evaluation.

Pros

Adequate Financing: Offers up to S$500,000 per borrower, a substantial amount that can cover significant operational expenses.
Government-Backed: With Enterprise Singapore championing the scheme, there is a layer of credibility and security.
Flexible Risk-Sharing: Standard risk-sharing is at 50%, but for early-stage companies, this can go up to 70%, reducing the financial burden.
Extended Repayment Period: A 5-year repayment period allows businesses to manage cash flow without immediate repayment pressures.
Accessible to Many: Broad eligibility criteria make it accessible to a wide range of SMEs.

Cons

Interest Rate Variability: The interest rate is subject to the lender’s assessment of risk, which can result in varying rates that may be higher than expected.
Eligibility Restrictions: While accessible, businesses must still meet certain criteria, including local ownership and operational prerequisites, which may exclude some SMEs.
Collateral Requirements: Some PFIs may require collateral, which can be a barrier for businesses without significant assets.
Borrowing Limits: The loan amount, while generous, may not cover all needs, especially for businesses on the cusp of the SME definition.

Eligibility

Have a registered business entity in Singapore that is physically based there
Own 30% or more of the local equity, either directly or indirectly, by Singaporean(s) and/or PR(s), in accordance with ownership composition.
The SME definition of “working capital” refers to Group revenues of up to S$100 million or a maximum group employment size of 200.

2. Temporary Bridging Loan: SMEs Needing Financial Relief to Manage Short-Term Liquidity Challenge

The Temporary Bridging Loan Programme (TBLP) allows businesses to secure temporary financing. Working capital is the money needed to cover short-term cash flow shortages. This includes paying VAT, wages, and suppliers’ invoices.

The maximum loan amount is $3 million per borrower, with a repayment period of 5 years. The interest rate for this business loan is capped at 5% per annum with a government risk share of 70%.

Pros

Accessible Loan Amount: Provided up to $1 million, catering to significant immediate financial needs.
Capped Interest Rate: With a maximum interest rate of 5.5% per annum, it kept borrowing costs predictable and affordable.
Extended Repayment Period: A 5-year term offered businesses the time needed to stabilize and repay without haste.
Substantial Government Support: With a 70% government risk-share, it lowered the risk for lenders and could improve approval chances.
Broad Eligibility: Targeted a wide range of businesses with a straightforward ownership requirement.

Cons

Temporary Measure: As a programme designed for short-term relief, it was not a solution for long-term financial strategy.
Ended Programme: The scheme concluded on 30 September 2022, so it’s no longer available for businesses seeking assistance.
Ownership Requirement: The 30% Singaporean/PR ownership criterion may have excluded some businesses with diverse or international ownership structures.
Loan Cap: While $1 million can be substantial, for larger businesses this might not have covered all short-term liquidity needs.

Eligibility

Be a Singapore-registered business entity with a physical presence on Singapore soil
Have a business directly or indirectly owned by 30% or more Singaporean(s) or Singapore PR(s), as determined by the ultimate individual shareholders

How to Apply

All enterprises eligible for the TBLP will undergo an evaluation by Participating Financial Institutions (PFIs). If additional support is needed, enterprises can contact Enterprise Singapore at (65) 6898 1800 or submit an inquiry via https://go.gov.sg/askenterprisesg.

Note that this business loan has ended last 30 September 2022.

While the Temporary Bridging Loan Programme was a significant initiative providing timely support for businesses facing immediate financial pressures, it’s important for businesses to consider other existing options or new programmes that may replace it since it’s no longer available. Businesses must always stay informed of current financial support measures that suit their needs.

Best Banks offering SME Business Loans

Banks offer a variety of small business loans and medium enterprise loans, but because banks are not as willing to risk a loss, these are loans are often divided to a specific business need. This can include funds for daily operations, your employees’ monthly salary, kickstarting a new business, and more.

Some of the loan options you can find with different banks include but are not limited to:

Startup business loan
Working capital loans
Equipment financing
Trade financing
Micro loans
Property financing

Before applying for a business loan, there are many things to consider. The most vital is your provider. It is important to look at and compare the numbers to find the best SME loans in choosing a bank.

Business loans interest rates, for example, are a major factor in deciding which bank to go for. Most banks say that they offer “competitive” rates, but if borrowers don’t know how those rates are calculated, they can sometimes miss out on getting the best deal possible for their money.

SME Business Loans	Maximum Loanable Amount	Repayment Period	Interest Rate (p.a)	Processing Fee	Early Repayment Fee
DBS Business Loan	Up to S$500,000	Up to 5 years	7% to 11%	2% of the loan amount	2.50%
OCBC Business First Loan	S$100,000	Up to 5 years	8% to 11%	2% of the loan amount	N/A
UOB Bizmoney Loan	S$350,000	Up to 4 years	Up to 10.88%	2% of the loan amount	6.88%
UOB SME Working Capital Loan	S$500,000	Up to 5 years	Per bank assessment	2% of the loan amount	6.88%
Maybank Business Term Loan	S$500,000	Up to 5 years	Not published	2% of the loan amount	Discuss with bank
Standard Chartered Business Instalment Loan	S$500,000	Up to 5 years	97 (board rate)	Default fee: S$100	5% if redeemed within first twelve months, 3% of amount thereafter.

1. DBS Business Loan: Best for SMEs Needing Versatile Financing Without Collateral

DBS is one of the largest banks in Singapore, providing competitive interest rates for the majority of business loans they offer.

Among the 12 financing options available are business term loans and asset loans. Thus, making it a suitable option for SMEs from diverse industries. The DBS Digital Bank Loan, in particular, allows business owners to obtain financing of up to S$500,000 for repayment over a period of up to 5 years.

Pros

Offers a range of loans including term and asset financing.
Provides up to S$500,000 in financing.
Unsecured loans remove the need for asset backing.

Cons

Necessitates at least 30% local ownership.
Subject to DBS’s internal eligibility criteria.

Eligibility

The business should be physically located and operated in Singapore.
A minimum of 30% of the business should be owned locally.
This loan is an unsecured business term loan, which means there is no collateral required.

How to Apply

Apply Online: Begin by submitting your business loan application through the DBS website. Make sure to gather all necessary documents needed for your application.
Notify Guarantors: After submitting your application, we will contact your guarantors via email to obtain their endorsement.
Monitor Application Progress: You can check the status of your application at any time using the DBS IDEAL online business banking platform.
Evaluate the Offer: Once your application is approved, we will present you with an offer. You can accept this offer through the DBS IDEAL platform. If digital acceptance is not possible, a relationship manager will help you with the process.
Await Funding Notification: We will inform you once the funds have been transferred to your DBS business account.

2. OCBC Business First Loan: Best for Start-Up SMEs Looking for Quick, Unsecured Financing

OCBC’s Business First Loan has a cap of S$100,000 and a maximum repayment period of 5 years. In addition, they offer a 50% discount on facility fees if you apply online through OCBC’s website. Similar to most SME loans, the online approval process is fast and secure.

Pros

Offers a high cap of S$100,000 with a flexible repayment period up to 5 years.
50% discount on facility fees for online applications.
Quick and secure online approval process.
Minimal eligibility criteria; only six months of business operation required.

Cons

Requires at least one guarantor with a minimum annual income of S$30,000.
Limited to businesses that are at least 30% Singaporean-owned.
Approval process, while fast, still demands at least 1 employee and majority equity held by individuals.

Eligibility

Applicants need only to have been in business for six months to qualify.
At least 30% owned by Singaporean or Singapore PR
At least 1 employee and more than 50% equity owned by individuals
The loan does not require any collateral or paperwork.
Still, at least one Guarantor (Singaporean or Permanent Residents 21 years old and above with an annual minimum income of S$30,000) is required.

How to Apply

Initiate Application: Begin by registering with your Singpass.
Personalize Financing: Choose your desired loan amount and set the terms for repayment.
Guided Process: Our team will reach out to help you through the subsequent steps.
Funds Disbursement: Congratulations, the funds will be deposited into your account!

3. UOB Bizmoney Loan: Best for Start-Ups and SMEs Seeking to Upscale Without the Need for Collateral

BizMoney Loans offer a loan capacity that is up to a maximum of S$350,000. There’s a 5-year maximum repayment period as well. Currently, the effective interest rate on this loan is 10.88% per annum, with a 2% facility fee (also known as a processing fee). It’s also worth noting that there is an annual fee of S$500.

This loan is ideal for start-ups looking to upscale as they can avail of a quick microloan up to $100,000 with no collateral needed for over 4 years.

Pros

Suitable for a range of needs with up to S$350,000 available.
Accessible to businesses without large assets.

Cons

Comes with a 10.88% effective interest rate.
Charges an annual fee and processing fee.

Eligibility

Sole Proprietor, Partnership, or Private Limited Company
Registered and operating in Singapore for a minimum of 1 year
At least 30% local shareholding
Company’s group annual sales of not more than S$100 million OR company’s group employment size of not more than 200

How to Apply

Access your MyInfo business account to start.
Provide specific details about your business.
Make sure your application details are correct.
Expect a response within one day.

4. UOB SME Working Capital Loan: Best for SMEs Looking To Boost Their Cash Flow and Grow Their Business

The UOB SME Working Capital Loan is an unsecured financial solution that supports Singaporean SMEs by providing up to S$500,000. This initiative, backed by Enterprise Singapore, is tailored to enhance a company’s liquidity and help it stay competitive and agile in the market.

UOB prides itself on understanding the unique needs of SMEs, blending their industry insights with financial innovation to offer customized working capital solutions.

Pros

Offers up to S$500,000 for substantial working capital needs.
Ease of access without the need for collateral.

Cons

Specific Eligibility: Restricted to businesses with considerable local shareholding and operational history.

Eligibility

Company registered & operating in Singapore
At least 30% local shareholding
Company’s Group^ Annual Sales of not more than S$100million OR company’s Group^ employment size of not more than 200

5. Maybank Business Term Loan: Best for SMEs That Require Substantial Funding with a Mid-Term Repayment Plan

Maybank’s Business Term Loan is a suitable choice for small businesses seeking a hefty amount of business financing. SMEs may secure this loan worth up to S$500,000, with loan repayment terms of up to 5 years.

Pros

Offers up to S$500,000, suitable for major business needs.
Provides up to a 5-year term for repayment flexibility.

Cons

As with most significant loans, stringent credit assessments may apply.

Eligibility

At least 30% local shareholding
Established for at least 3 years

How to Apply

Necessary Paperwork

Consent Form for SME Banking
Latest 2 Years’ Financial Statements (where applicable)
Recent Half-Year Bank Statements
Past 2 Years’ Income Tax Assessments for Guarantor(s)
Guarantor(s) NRIC Copies (front & back)

Initiating Your Application

To begin, you may either request a callback or send an SMS to 79898 using the format below, and Maybank’s Business Development Manager will contact you promptly.

Text Format: BIZTL [Your Full Name] [Your NRIC]

For Example: BIZTL Andy Lau S1234567Z

6. Standard Chartered Business Instalment Loan: Best for Established SMEs Seeking Substantial Financing

Standard Chartered Business Instalment Loans are collateral-free and offer loan repayment terms of up to 5 years for loans between S$70,000 and S$500,000. While the actual interest rate on this loan will vary, it is currently at 9% p.a. (Business Instalment Loan Board Rate).

Pros

Attractive for businesses lacking physical assets for collateral.
Loans range from S$70,000 to S$500,000, catering to various scales of business needs.

Cons

Requires a minimum of three years in business and S$750,000 in turnover.

Eligibility

Sole Proprietors / Partnerships / Private Limited Companies
Singapore-registered business
50% or more shareholdings is effectively held by Singaporeans / Singapore PRs
Minimum 3 years of business operations
Minimum turnover of S$750,000

How to Apply

Documents Required

Photocopies of Sole Proprietors’ / Partners’ / Principals’ / Directors’ Identity Cards / Passports
Company’s Goods and Services Tax statements for last 4 Quarters
Company’s operating bank current account statements for the past 6 months
Completed Business Instalment Loan Application form
Copy of Sole Proprietors’ / Partners’ Income Tax Notice of Assessment
Board of Directors’ resolution
Company Constitutional Documents like Memorandum and Articles of Association
Professional Certificate (if applicable)
Documents related to establishment of entity, identity and address proof documents

To apply, you may visit Standard Chartered’s website to apply online.

Alternative Financing Options

Licensed Moneylenders: Best for SMEs that Need Quick Cash Flow Solutions

Licensed moneylenders in Singapore provide an alternative financial solution for SMEs needing quick capital infusion with fewer bureaucratic hurdles. These lenders cater to businesses that may not meet the stringent requirements of traditional banks.

With the ability to disburse up to S$200,000 rapidly and with minimal documentation, licensed moneylenders offer a viable option for businesses in urgent need of funds, operating with flexible loan tenures of up to 24 months.

Pros

Quick access to funds is ideal for urgent financial needs.
Easier application process with less paperwork as compared to banks and other financial institutions.

Cons

Rates range from 5% to 15%, which can be costlier than bank loans.
Maximum of 24 months may require quicker repayment.

Eligibility

Business must be registered in Singapore
Must be operational for at least one (1) year
Has a minimum turnover of S$60,000

Document Requirements

All directors and partners NRIC
Recent information report (Business Profile) from the Accounting & Corporate Regulatory Authority (ACRA)
Recent Income tax assessment notice (both personal & from the company)
Recent financial statement
Recent invoices or business contracts
Recent utility bills under the company name
Recent 6-month bank statements
List of assets owned by the company, directors & partners (if any)
Office/shop tenancy agreement (if any)

Real Stories: Successes and Challenges

Case Study: Unidbox Hardware

Unidbox Hardware, a local hardware supplier, experienced considerable financial strain that threatened the job security of its workforce. Through a partnership with DBS, the company was able to secure vital cash flow relief.

This timely financial support helped stabilize the company’s finances during a critical period, ensuring they could maintain their workforce without layoffs or cutbacks. This example highlights how targeted financial aid can provide a lifeline to businesses, enabling them to weather periods of uncertainty.

Case Study: Awfully Chocolate

Awfully Chocolate, spearheaded by founder Lyn Lee, is a homegrown chocolatier that has seen its brand flourish both locally and internationally. With the financial backing of UOB, the company expanded its Raffles City Boutique and extended its reach beyond Singapore’s borders.

UOB’s timely financial assistance was crucial in enabling this expansion, showcasing how supportive banking relationships are vital to scaling operations and exploring new markets.

Conclusion

When selecting the best SME business loan in Singapore, the choice largely depends on your specific business needs, the amount of funding required, and the stage of your business. Here’s a guide to help you decide based on the options mentioned:

Key Takeaways:

Beyond nominal rates, Effective Interest Rate (EIR) includes fees and compounding, crucial for understanding the real cost of loans.
Government-backed loans often offer risk-sharing, reducing lender risk and potentially improving terms for borrowers.
Each loan has specific criteria and borrowing limits; understanding these is essential to determine qualification and loan amounts.

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