11 Tips for Preparing Your Business Loan Application
While there is no shortage of loan options for businesses in Singapore, getting one approved is an uphill battle. Despite the variety of loan providers, including banks, licensed moneylenders, trade unions, and extensive government-backed financing schemes for SMEs (Small and Medium-Sized Enterprises), most small business owners struggle to access capital.
Lenders have a rigorous loan approval process to ensure funding is only offered to businesses that will repay in full and on time. Thus, understanding how to prepare for a business loan in Singapore application is key to succeed in this endeavor.
Here are 11 tips to help you through the intricacies of the loan application process. Whether you’re an established company aiming for expansion or a burgeoning startup, these insights will ensure you’re well-positioned to access the financial support you need to continue thriving-
How to Prepare for a Business Loan Application in Singapore?
1. Know Your Business
A comprehensive understanding of the business lies at the core of every successful application for business loans in Singapore. This entails a clear comprehension of your products or services along with a nuanced awareness of your target market and its intricacies.
The lenders want to ensure you are a trustworthy business with a clear intention to repay debt, and a solid business plan plays a critical role in the process.
Focus on these tips when working on your business loan application-
- Articulate a concise and compelling description of the products or services your business offers and highlight your USPs
- Demonstrate a deep understanding of your target market, including granular awareness of consumer behaviors, preferences, and emerging trends
- Outline your business goals and objectives, showcasing a clear vision for the future
- Provide realistic revenue forecasts, cash flow expectations, and expense projections
2. Ensure Smooth Business Cash Flow
When salaried employees apply for a loan like a personal loan or car loan, lenders ask them to submit their recent pay slips to ensure they draw a fixed salary. A smooth and reliable cash flow does the same in the case of business loans. Loan providers want to see that your business has a stable cash flow so that you can easily repay the loan on time.
So, before applying for a loan for business, it is essential to keep clean financial records for a considerable duration so that it can strengthen your loan application. Use these tips to showcase a healthy cash flow to the lenders-
- Provide accurate and up-to-date financial statements, including income statements, balance sheets, and cash flow statements
- Highlight consistent and diverse revenue streams to showcase income stability
- Provide a breakdown of accounts receivables and accounts payable
- Demonstrate how your business manages existing debts and obligations
3. Outline a Clear Repayment Plan
A well-structured repayment plan instills confidence in lenders and also makes it easier for you to manage your business finances. Both the points listed above will help you create an effective loan repayment strategy that you can present to your potential lenders.
A duly-filled application with all the required documents and a solid repayment plan can turn the tide in your favor when applying for a business loan in Singapore. Here are some points you should keep in mind when working on the plan-
- Briefly discuss the purpose of the loan and emphasize your commitment to timely repayments
- Add the interest rate, repayment tenure, and other relevant details specified by the lender
- Provide a month-by-month breakdown of the repayment schedule
- Discuss any options for early repayment and the associated terms
4. Assess Your Credit Score
Poor credit score is one of the most common reasons why lenders in Singapore reject business loan applications. The credit score works as a numerical representation of your creditworthiness, providing lenders with a quick assessment of the risk associated with lending to your business. And needless to say, lenders prefer lending to low-risk individuals and entities.
In Singapore, CBS (Credit Bureau Singapore) has a credit score range of 1000 to 2000, divided into 8 categories starting from HH (Very High Risk) to AA (Very Low Risk). If you have a low credit score, here are some ways to improve it and increase the chances of business loan approval-
- Always pay your credit card bills on time
- Avoid applying for multiple loans within a short period
- Try to maintain a low credit utilization ratio
- Regularly monitor your credit report, and inaccuracies, if any, should be brought to the credit bureau’s attention
5. Determine Loan Type and Amount
The next step for how to prepare for a business loan application is selecting the right type of loan and knowing how much loan you need. You can find a wide range of business financing options in Singapore, including term loans, short-term financing, commercial property loans, startup business loans, equipment and machinery financing, and more.
Understand the terms and conditions of these loans and consider professional help if necessary to make the right selection. As for the loan amount, a lot would depend on your eligibility. But here are some tips that can help-
- Conduct a comprehensive evaluation of your business loan requirements
- Work on a detailed budget and factor in contingencies
- Consider the loan tenure and your repayment capacity
- Resist the urge to over-borrow
6. Consider Government SME Loans
To encourage SMEs in Singapore, the government has introduced a variety of financing schemes, like working capital loans, temporary bridging loans, EFS (Enterprise Financing Scheme), and more.
The government works with ESG (Enterprise Singapore) and leading lending institutions in the country to make these loan products available to small business owners. Under these schemes, you can avail of business loans of up to S$500,000 for up to 5 years without any collateral.
However, there are certain eligibility requirements to get approved for these loan products. Some of the most important ones are-
- Business entities must be registered and physically present in Singapore
- At least 30% of shareholding held by Singaporeans or PR
- Group revenue should be up to S$100 million or the group should have up to 200 employees
7. Collect the Right Documents
Another effective way to increase the chances of approval is to have the right documents in your loan application. Not having all the documents will increase the risk of rejection and might also delay the approval process. So, it is better to be prepared.
While the lender might ask for additional documents, you’ll certainly need these-
- NRIC (National Registration Identity Card) or any other government-issued document with details of directors, principals, partners, and sole proprietors
- Business Profile Information (ACRA)
- Latest 2 years’ personal NOA (Notice of Assessment) of all the company directors
- Latest 2 years’ financial statements of the company
- Latest credit report or CBS report of all the directors
- Company bank statement of at least 6 months
8. Choose the Right Lender for Business Loan
Once you have completed all the above steps and are ready to apply for Business Loans, the next step is to select the right lender. The lender you choose will have a significant impact on the entire loan process, including the application process, approval, disbursal, and repayment.
So, make sure that you shop around for a while before making a decision. Here are some tips that can help you choose the right business loan provider-
- Research different types of lenders as different lenders often specialize in specific types of loans
- Check the eligibility requirements, minimum credit score, and application process
- Compare interest rates and terms
- Check reputation and reviews or seek recommendations from other business owners
9. Try to Build a Solid Relationship with the Lender
Building and maintaining a strong relationship with your lender is more than just a courtesy; it is a strategic imperative that can considerably impact your business loan application.
For instance, a positive relationship can open a channel for clear and effective communication which can help in addressing concerns, negotiating terms, and ensuring a shared understanding of expectations.
Moreover, it can also work as a foundation for flexibility in finding the right loan product as per your requirements. And more importantly, it can also open doors to additional financial services or favorable terms in the future. Here are some tips to build a rapport with your lender-
- Openly share information about your business operations when discussing the loan
- If the lender raises any concerns or potential issues with your application, resolve them promptly
- Gain insights into the priorities and concerns of your lender to tailor your communication effort
- Honor your commitments, whether they relate to submitting additional documents or any other agreements
10. Navigate Inquiries with Confidence
The next important step in how to ask for a business loan is preparing yourself for the questions and challenges that could arise during the evaluation process. Proactively addressing potential concerns showcases preparedness, resilience, and confidence.
Here are some questions you should prepare answers for before applying-
- Can you provide additional insights into your business’s current financial health?
- How do you plan to navigate challenges within your industry, given the current market conditions?
- Your company’s cash flow has been inconsistent for some time. What are the steps you’re planning to take to mitigate such variations?
- Do you have existing loans you’re currently repaying? How will you manage an additional loan repayment?
11. Wait for a Response from the Lender
One thing you should keep in mind when learning about how to prepare for a business loan application is that your credit score is impacted when you simultaneously apply for loans with multiple lenders.
So, once you’ve successfully submitted your application for a business loan to a lender, it is wise to patiently wait for a response. If your application is rejected, discuss the reasons for the same with the lender. Before applying again to another lender, ensure you’ve taken care of the reasons why your previous application was rejected.
Some of the common reasons why lenders in Singapore reject business loan applications are as follows-
- Poor credit history
- Insufficient cash flow
- No solid business plan
- High debt-to-income ratio
- Short business operating history
- Unfavorable market conditions
Successfully Applying for a Business Loan in Singapore
Securing a business loan in Singapore demands a strategic approach, meticulous preparation, and a commitment to transparency with the lender. Now that you know how to prepare for a business loan application, take advantage of this information to get the required financing at the earliest.
To expedite the process, you can look for a reputed online loan broker in Singapore that can help you find the best deal according to your business needs. Their consultants can work with you throughout the application process to mitigate potential issues, allowing you to fully focus on your business growth.
