Beginner's Guide to Business Loan Rates in Singapore
Regardless of whatever stage your business is currently in, taking up a business loan – if managed well – would undoubtedly be financially beneficial for your business in terms of starting, maintaining, or even scaling it.
While it would help to first understand how you can Get a Business Loan in Singapore, this article skips the nitty-gritty details on describing the different types of business loans and their application processes, diving straight into the guide for beginners to gain a comprehensive understanding of the respective interest rates and their calculations for Business Loans in Singapore.
Generally, apart from alternative financing options such as crowdfunding and venture debt financing etc., business loans in Singapore are traditionally provided by banks in varying forms such as unsecured business term loans, trade financing, SME working capital loans, equipment and machinery loans, and commercial property loans to name a few. The Temporary Bridging Loan Programme (TBLP) and SME Working Capital Loan (EFS WCL) were also recently introduced by the Singapore Government in 2020 to support SMEs and help the enterprises access working capital and increase both the loan quantum and risk-share undertaken.
These business loans would be accompanied with their respective interest rates charged, and they vary from time to time across the financial institutions. Another important point to take note of is that interest rates are also dependant on whether if there are any collateral – tangible assets like property and equipment – pledged towards the banks; whereby unsecured loans (without collateral) would typically incur higher interest charges. Similarly, for government-assisted loans like the TBLP and EFS WCL, the interest rates are generally lower due to the risk share undertook by Enterprise Singapore (ESG). These interest rates are normally quoted in the form of an Effective Interest Rate (EIR).
Overview display of OCBC Business Loans and their indicative range of EIR on 10 July 2020.
Image adapted from: https://www.ocbc.com/business-banking/articles/business-loans-interest-rates-heres-what-you-must-know
What exactly is EIR and how to calculate it?
In simple terms, EIR is the actual cost of borrowing (real percentage rate owed in interest on a business loan) and it is applied on a reducing balance basis – where the monthly interest rate is based on the loan principal amount at the start of every new month (loan principal amount less all the previous monthly repayments).
The EIR can be easily calculated using this formula:
For efficiency, we recommend you use an online program or an excel spreadsheet to carry out your calculations for your business loan. To illustrate, a simple excel table is provided below:
So, how should I choose my Business Loans?
While it might be tempting to choose your Business Loan based on the EIR alone for a hassle-free thought process, it is imperative to also consider other evaluative factors such as the processing fees and duration, requirements for collaterals, and any penalties meted out for early repayment of your loan to name a few. Most importantly, you would also have to understand the eligibility and requirements which will vary across different banks and business loan products.
Above all, it ultimately depends on your business needs – whereby the purpose of your loan for your business would determine the type of loan, tenure, and amount required. It is only then that those considerations mentioned above would come into play.
Reliable Business Loan Consulting Service in Singapore
If you are looking for a business loan in Singapore, you are definitely at the right place!
Here at Bizsquare, we are a group of professional and experienced business consultants that are dedicated to helping small and medium enterprises grow. Regardless of whatever business loan you are searching for, we promise to do our very best in providing you with our hassle-free and cost-free consultancy services until your desired business loan is approved.
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For more info, please visit Bizsquare Group at www.bizsquare.com.sg