Struggling to thrive as a startup business can be tricky, especially when facing the inevitable problem of business funding. The good news is, there are several methods used by early-stage companies looking for financing options to grow their idea into something profitable.
Ways to Fund Your New Business in Singapore
With working capital and other cash flow issues, it’s essential to know what kinds of resources and business loan options are available for growing your startup business. Here are the different ways you can fund your business:
- Government Schemes
- Family & Friends
- Banks & Financial Institutions
- Financial institutions
- Self-funding
- Crowdfunding
- Angel Investment
1. Government Schemes
Several state-funded programs and business loans in Singapore were established to encourage entrepreneurship and the growth of many businesses. These are also popular government-assisted financing schemes, like the SME Working Capital Loan, Business Term Loan, and SME Micro Loan.
These small business loans are designed to help startup businesses in Singapore get off the ground and are tailored to meet the needs of different types of entrepreneurs.
- Temporary Bridging Loan. A loan formulated to support businesses during the pandemic. It can offer a high amount with low-interest rates but is only available until 30 September 2021.
- SME Micro Loan. The SME Micro Loan is meant to function as a small loan of up to S$100,000 for startups.
- SME Working Capital Loan. Functions similarly to SME Micro Loan but with a maximum amount of S$1 million.
Enterprise Singapore
SME loans and grants like the SME Working Capital Loan are typically obtained through Enterprise Singapore, helping first-time entrepreneurs boost their business operations.
Startup SG Founder
Additionally, startups can check out the StartupSG Grants. StartupSG Equity is a program that provides funding support for small businesses. They help local businesses gain access to working capital with a startup business loan to accelerate cash flow on the commercialisation of deep technology.
National Research Foundation (NRF)
The NRF established early Stage Venture Fund (ESVF) specifically to attract venture capital firms to early-stage tech startups.
For other small business loans in Singapore, you may also consider Spring Singapore and the raISE SG VentureForGood Grant.
PROS
- Funding is available for a variety of fields, including health, science, business, and education.
- You can apply for as many grants offered by the Singapore government as you like.
- There’s less risk due to the low interest rates and the relatively low sums involved.
- A startup business owner can get promptly paid once they prove the credibility and viability of the business for the Singapore economy.
- The maximum loan amount of some government schemes are high, coupled with low-interest rates, like the Temporary Bridging Loan.
CONS
- Confirming your eligibility may be exhausting, especially since government loans do not assure success.
- Despite your business goals being suited for some SME loans, consider that the maximum loan amount on these business loans will be based either on a fixed percentage or a lump sum. The limited loan amount might not be enough to cover your needs.
- Most government grants are short-term. If your finances dry up, you will have to go through the hassle of finding another funding source. You want to ensure that you get the most out of your business loan, so use it wisely.
- The Temporary Bridging Loan is only available for a short period.
- While the government has designed laws to make loans favour the borrower, some schemes may be strict with eligibility and have minimum income requirements and look at your credit history.
2. Friends and Family
Requesting personal loans and funding from friends and family to manage business costs and operations may also be another option you can consider. Many entrepreneurs do just that, borrowing money from individuals they trust to keep their business running.
To be a viable option, you need to draft some guidelines with your financial partner(s). It may be necessary to obtain legal advice and draw up a proper legal document concerning the terms of your business loan between you and them.
PROS
- Setting the terms together beats any bank’s or other business loan schemes’ flexibility of monthly repayments.
- Appealing for an extended period for the business loan may also be more accessible.
CONS
- As a startup, you might still be adjusting to the peaks and valleys of your venture. Having your friends or family hold the bag may result in the money not being used appropriately.
- Taking out a business loan from your friends and family can get messy if you happen to run into conflict. Most don’t encourage extending credit to people unless they are someone you truly trust.
Standard Business Loans
Banks or private financial institutions typically issue these at advantageous interest rates with terms ranging from 3-5 years or more, depending on the type of loan you’re looking for.
Loans are typically divvied up depending on what your business needs. Some of them include:
- Business Term Loan. A business term loan is a traditional business loan you pay back with fixed interest.
- Working Capital Loans. Loans specifically for providing funds for daily operations.
- Unsecured Loan. A loan that doesn’t require collateral.
- Equipment Financing. A loan explicitly used for financing equipment.
- Property Financing. A loan you can use to purchase property when expanding or moving offices.
3. Banks
Most banks will loan you money if they are satisfied with the startup’s projected returns. Meaning, you need to write a good business plan and present your business model to the bank.
That’s why a startup business loan is a perfect option, particularly for entrepreneurs who are not yet taking off or startups that need more time to develop their project before they can take it public.
Even if you have your own savings, a business loan from banks is usually considered more manageable than for entrepreneurs who are starting with no money.
PROS
- The process of a business loan application and getting approved by the bank takes much less time and effort than dealing with private investors.
- Banks will often have competitive business loan details and long tenures.
CONS
- Bank interest rates will often be much higher than those found on a personal loan or credit card company as most people use.
- Taking out a high-interest rate business loan might end up costing you more in the end.
- Most banks will tend to be strict with eligibility. They will look at your personal data, such as your credit history, financial history, monthly income, and more, outside of look at the operational history of your business.
- There may be a processing fee.
4. Financial Institutions
Starting a loan application from private financial institution is easier than it sounds. You just fill out an application online and get a call or text back within minutes to schedule your appointment to review the loan terms.
Minimal credit checks, no fuss, no waiting weeks for approval or denial of your business loan application. Moreover, personal loans are also provided by financial institutions to fund your own business.
PROS
- As long as you have a good business idea and a sound plan to move forward, financial institutions can help you get the cash flow you need.
- Less strict with requirements
CONS
- The interest rate is likely higher than you’d get with a traditional bank or other financial institutions.
- It’s also worth mentioning that extra charges may apply, like a processing fee and so on, so make sure to talk about those before starting the application process to avoid any surprises later on.
5. Bootstrapping or Self-funding
If you can’t find ways to finance your business, then grab yourself by the bootstraps, be your own boss, and do it yourself.
This means that they will need to be profitable enough to cover expenses and keep going without any financial support outside their own pocket.
The appeal is obvious: You build the business and reject outside funding that may demand compromises on your values and plans.
PROS
- It can help you avoid the inevitable problems of debt and dilution that come from interest payments.
- One advantage of self-funding is that you control how the money is spent (e.g., on expanding a project). It can be suitable for ownership’s stake, giving employees more say in what they work on (especially if they have shares), and encouraging business forward-thinking.
CONS
- Bootstrapping can lead to a lack of capital for startup companies. In the beginning, most businesses often need money and lots of it, which is necessary for the cost of daily operations, salaries, and all other essential payments. Not having access to stable funding can delay or limit growth.
- Viable only when you can afford it with a sufficient yearly or monthly income.
6. Crowdfunding
Crowdfunding is primarily a donation-based model, and transactions are often powered by “rewards” in exchange for donations.
Simply put, it’s a way to harness the power of investing in your idea without having to work up the capital yourself necessarily. You achieve this by raising small amounts of money from large numbers of people who believe in your business idea.
PROS
- This method has been used for centuries, but the internet has made it easier to reach potential donors.
- You have the potential of getting monetary investments, supporters, and even clients from your campaign so that you can build and grow your business around a premise that’s already successful.
CONS
- Unlike the typical business loan, crowdfunding does not have the same regulatory framework or legal and tax structures, which can be both an advantage and a disadvantage.
- It removes the need for investors and creates a dependence on public generosity.
7. Angel Investment
These investments are made in smaller companies that have the potential to grow and expand into something large and profitable.
Angel investors are generous individuals who have a knack for recognising good business ideas before these concepts blossom into significant successes. They provide money for these fledgling companies without expecting compensation, unlike other financing methods that require payback for the loaned money.
Jeff Bezos and Paul Buchheit are world-renowned angel investors.
PROS
- They often do not come with the same strings attached to them as other investments, making angel investments worthwhile for any startup!
- These investors also tend to be brutally honest with the startups, which is a plus in our book (or heart). By being honest, they can offer mentorship about things that the startup might be doing wrong, and based on their own experience, help them fix those issues.
CONS
- It can be hard to convince investors in the first place to back up your business. Your ability to raise funds is subject to their whim.
What to consider when financing a startup SME business?
How much is a startup business loan?
Startup loans can go from S$100,000 to as high as S$1 million. The average interest rate of a business loan can range from 4% to 20%, depending on the tenure and the nature of the loan.
Long-term and specific use loans typically charge lower interest rates than short-term and general business loans, as they provide longer-term returns and less risk.
Can I get a business loan with no money?
In today’s economy, many business owners are struggling to keep their heads above water financially. Unsurprisingly, securing a business loan with no money is not easy, and it certainly isn’t typical either.
But it is possible! Startup entrepreneurs can ask for help from friends and family, an angel investor, or start a crowdfunding campaign.
How to start a business in Singapore?
- Find someone with deep connections in Singapore to invest in your business. The amount of money and connections they have will dictate the size of your business.
- Get a legal advisor on board to draft your incorporation documents, articles, and share certificate. They’ll also be able to advise you on company statutes which must be followed.
- If you need extra capital for operational expenses, it is also recommended to use a private equity fund or angel investor towards the beginning stages of the growth cycle. You don’t want too many investors because it can complicate matters.
- Think hard about how much emphasis you want to place on branding and customer service.
How to get funding for a startup?
You can secure funding through Government Schemes, Friends and Family, Standard Business Loans, Bootstrapping or Self-funding, Crowdfunding, an Angel Investor, and more. You can even try opening a business line of credit.
How to get a business loan urgently?
Financial institutions provide different loan types through a quick application.
How much capital do you need?
Depending on the nature of your business, you will need different levels of capital.
What should I keep in mind when choosing a business loan?
- Always know your budget.
- Weigh your business loan options
- Evaluate and compare different loaners before choosing one to borrow from.
- Never borrow more than you can afford to pay back with interest.
- Be prepared for the total cost of the loan before you apply, which includes fees, charges, and the interest rate.
Before applying for a business loan, any business owner must always think about all aspects of that loan and decide whether it will suit their business needs. In the end, it is up to the individual’s discretion.
So if you’re looking to get financing, we at Instant Loan can expand and curate your options into the top financial institutions in Singapore that offer various financing options available for new and small businesses.
