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3 Important Factors That Affect Your SME Business Loan Eligibility In Singapore 2020
A business loan does not only help when a company is facing with cash flow issues (especially during the Covid-19 pandemic where business loan applications shoot up), but it is also useful when companies are looking for funds for expansion, to invest in new IT solutions or equipment, to stock up on inventory due to foreseeable increase in demand, or even for marketing purposes.
Many factors and conditions affect a company’s eligibility to qualify for a business loan. The lending criteria also differ across different banks and Financial Institutions (FIs). As a business owner, you may not be aware of what to look out for. Hence, at Smart Towkay, we have identified THREE important factors that you need to pay close attention to, as they could cause your business loan application to be outright rejected.
1. How Long Has Your Company Been Operating in Singapore?
One of the most important criteria that banks consider is the duration that your business has been operating for - not just from the time your company is registered, but whether there has been legit business operation.
From a lender’s perspective, the longer a company has been in operation, the more stable the business is. Data from professional services firm Aon noted that in 2017, whilst 62,113 new businesses were created, 48,259 exited the market. The struggle for new startups is real, and many new businesses do not survive past their first two years.
Hence, it is no wonder that most lenders are more stringent with their lending criteria towards new businesses, as they might not even survive long enough to repay back their loans. (Nevertheless, it is still feasible for new businesses to secure a loan, but maybe in a much lesser loan quantum.)
Most banks and FIs deem a company as reasonably stable when it has been in operations for at least 2 years. These companies that have operated for more than 2 years also have access to a greater variety of SME business loans, which are usually larger loan amounts at much lower interest rates.
2. What Is The Annual Turnover Of Your Business?
Needless to say, another key criteria to qualify for a business loan is the annual turnover of your business. As straightforward as it sounds, if a company is not earning, why would banks want to approve the loan?
Another point to keep in mind is to ensure that your company’s monthly installments are less than your monthly cash flow.
So how much exactly are banks looking at?
Banks generally prefer companies that show an annual turnover of S$300,000 and above. This is also used as a gauge to determine the loan amount that your company qualifies for.
3. Credit Bureau Score
In Singapore, it is mandatory to provide a personal guarantee (PG) for all unsecured loans.
From the bank's point of view, when an owner of the company comes in as a PG, it certainly reflects the company management's confidence and commitment to the company for the business loan that the company has undertaken.
Hence, your personal credit bureau score plays a very important factor, and it affects your business loan application. The better your credit rating, the higher your chances of getting a company loan. You can attain your credit report from www.creditbureau.com.sg.
Lenders look at your credit report to determine your company’s loan quantum, as well as your personal credit history to determine the chances or capability of your repayment of the loan.
A good credit rating score is AA, BB or CC, with AA being the best grade, of course. However, if your personal credit score is below CC grade, this does not mean that the loan application will be rejected. Sometimes an additional guarantor to the loan, or collateral to secure the loan may be requested.
Click here to compare the rates and Terms and Conditions of various lenders in Singapore