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Small and medium enterprises (SMEs) that need financing assistance have plenty of options, particularly in a highly banked society like Singapore. Be it from existing banks or from newer digital finance and banking platforms, there are various types of loans to meet the diverse needs of SMEs.
We look at the pros and cons of the different bank loans offered by both established banks and digital banks to help you decide on the best financing options for your business needs.
Product Offerings: Established banks tend to offer a full suite of services that cater to businesses of all sizes and needs. Besides the basic business banking services, established banks provide deeper financing solutions, such as invoicing, payments, collections, and foreign exchange services. Digital banks, on the other hand, may offer similar but limited services in the form of savings, deposits, transfers, investments, cash management accounts, and loans.
Interest Rates and Fees: Digital banks do not need to spend on any infrastructure or real estate costs as they operate entirely online, which enables them to offer attractive interest rates, and other perks such as no minimum account balance, and no account service fees. On the other hand, established banks may offer lower savings interest rates, impose minimum account balances, and charge account service fees.
Level of Trust: Digital banks in Singapore have a shorter track record and less global brand recognition than established banks, which have been operating longer and have a history of managing customers’ deposits through economic cycles. This protracted history of safety may give customers a higher sense of trust in established banks, compared to their digital counterparts.
Type of Presence: Established banks usually have broader physical offerings in the form of bank branches, automated teller machines (ATMs), and cash deposit machines (CDMs), as well as an online presence in the form of mobile apps and online platforms. In contrast, digital banks operate entirely online through their mobile apps or digital platforms.
Read Also: Why Open A Business Account With A Bank?
Different Types Of Business Bank Loans Offered By Established Banks
Established banks offer a wider range of commercial loans that target everyone from start-ups to established businesses.
#1 Business Start-Up Loan
One of the challenges most new businesses face is getting financing as they may lack the track record to prove their creditworthiness. Some banks, like OCBC Bank, offer businesses with at least 6 months of operations loans of up to $100,000, with minimal documentation required under its Business First Loan scheme.
#2 Working Capital Loan
For more established businesses, it is common to require short-term financing for your working capital needs. You may use this loan to cover day-to-day operational costs, fund expanding business operations or more. For example, the OCBC Business Term Loan allows you to borrow up to $700,000 with a repayment period of up to 5 years, collateral-free. You will also be able to tap into the advice of the bank with regards to your application and other business banking needs at the same time.
Alternatively, you may consider the government-assisted SME Working Capital Loan. This loan is enhanced to allow businesses to borrow up to $500,000 till 31 March 2023. Such government-assisted loans are typically disbursed via established banks in Singapore – for instance, SMEs may apply for such support through the OCBC SME Working Capital Loan.
#3 Invoice Financing
Another short-term financing option that is available to businesses is invoice financing. Businesses can pledge your unpaid business invoices with the bank to receive up to 80% of the invoice amount as an advance payment. This allows your business to provide longer payment terms to your buyers or build better relationships with your suppliers by paying them right on time. Key benefits of OCBC Bank’s Short-Term Financing are its low borrowing rate and quick access to the funds.
#4 Contract Financing
Bidding for big contracts means more profits for your business. But you may not have sufficient capital initially to purchase the required equipment and tools, especially when you would only get paid later on.
In such instances, you can use Contract Financing – which is tied to your specific contract – to finance both local and overseas contract needs. The OCBC Contract Financing solution is customised to help you fulfil your contract needs. This allows your business to focus on completing contracts without worrying about funding availability.
#5 SME Sustainable Financing
Businesses that are keenly looking into sustainability solutions to reduce their carbon footprint can tap into Sustainable Financing – Green Loans For SMEs. With the OCBC Green Loan, SMEs – especially those in the Built Environment, Clean Transportation, Renewable Energy and Energy Efficiency sectors – can receive more guidance to achieve their sustainable goals, through simple frameworks that reduce compliance time and complexity.
#6 Enterprise Financing Loans
Singapore businesses that need financing assistance for research & development (R&D), or expansion locally or overseas through a merger and acquisition, could apply for a suitable loan under the Enterprise Financing Scheme (EFS).
One such loan programme is the Enterprise Financing Scheme – Merger And Acquisition (EFS – M&A). Banks like OCBC offer the EFS – M&A to SMEs looking to conduct a merger and acquisition locally or overseas. It provides funding of up to $2 million with a flexible repayment period of up to 5 years.
Another type of loan that established banks like OCBC Bank offer is the Enterprise Financing Scheme – Green. This can be used to scale up your business in the green economy.
#7 Commercial Property Loan
A Commercial Property Loan might be useful if you need to acquire a new commercial property or refinance your existing commercial property. OCBC Bank’s Commercial Property Loan extends a borrowing limit of up to $5 million for a repayment period of up to 30 years, also offers green commercial property loans. These loans come with a free assessment of the building’s or office space’s energy efficiency. Such loans are suitable if you’re making your building more energy-efficient and looking to save on your electricity bills.
#8 Overseas Expansion Loan
Venturing and expanding to overseas markets may be on the cards for established businesses. But such endeavours can be costly. Banks, like OCBC Bank, offer these enterprising SMEs the SME Overseas Loan option and a Business Venture Loan option that help with their funding needs.
Business Bank Loans Offered By Digital Banks Or Finance Platforms
The number of digital finance platforms, including digital banks, that operate in Singapore is still small and in its infancy. Therefore, it’s not surprising that the depth and choice of business bank loans are smaller compared to established banks.
#1 Business Loan
These commercial loans are meant for the working capital needs of businesses. Each digital bank may have varying loan terms, such as minimum loan size, interest rates, and loan tenure. While some loans can be applied for with little to no paperwork, the terms are usually less appealing than those offered by established banks, such as shorter loan terms and higher interest rates.
#2 Cash Advance
Another type of business loan that digital banks offer is a credit line or cash advance. These loans are intended for short-term requirements to bridge the gap between urgent payments that are due and payment receipt.
As these finance and banking platforms may not have a deeper working relationship with businesses, especially at the start, the interest rates charged may also be more costly.
Which Is Better For Your Business: Loans From Established Banks Or Digital Finance Platforms?
Whether you should take a loan from an established bank or a digital finance platform depends on several factors.
Firstly, the size of the loan. Typically, established banks like OCBC are able to offer Business Term Loans of up to $700,000, which businesses could use for their working capital needs.
Second, the interest rates on the different types of business loans. Established banks may offer lower interest rates on some loans, particularly for businesses with a longer track record and good credit history. For example, businesses could borrow at 0.6% per month under OCBC Bank’s Short-Term Financing.
A third factor to consider is the credit history of the business. Established banks typically require businesses to have at least two years of track record and a good credit history before they are considered for business loans. Nonetheless, businesses with operations between 6 months and 2 years have the option of taking up OCBC’s Business First Loan for a loan quantum of up to $100,000.
Finally, consider the relationship with the lender. Established banks offer customised industry expertise and advisory services that match the needs and requirements of businesses, which value-adds to small businesses. For instance, a business intending to take the Enterprise Financing Scheme – Green Loan or a Business Venture Loan would be advised by an OCBC Business Development Manager on industry-specific requirements to fulfil.
Ultimately, businesses should weigh these pros and cons with their specific needs and pain points to make an informed decision.
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Need Financing Support During This Period?
Enjoy fast access to funds and receive your loan approval status instantly when you apply online with OCBC.
For SMEs that are just six months into operations, secure up to S$100,000 with the OCBC Business First Loan. For SMEs with more than two years of operations, secure up to S$700,000 with the OCBC Business Term Loan —suitable for funding business operations or expansion. Terms and conditions apply.
