Startup owners and entrepreneurs often seek government-assisted business loans to help fund their businesses. With many small business loan options available, deciding which one is right for you can be hard.
It's important that you research all your funding choices before making a decision. Different financial support programs offer different benefits depending on the size or type of your company and other criteria such as eligibility requirements and loan terms. Knowing these facts can help you make the best choice when applying for financial assistance from governmental organizations like Enterprise Singapore.
Types of Government-Assisted Loans
Not everyone has a few thousand dollars handy to start their business. That's why government-assisted loans for entrepreneurs are available so that you can finance your new business venture. Researching and comparing the different types of government-assisted small business loan options is an essential part of getting ready to apply. Each type offers something unique, from eligibility requirements to funding amounts and repayment terms, among other factors.
Enterprise Financing Scheme (EFS)
The Enterprise Financing Scheme (EFS) includes various government-assisted loans that serve various functions. These loans are available to Singapore-registered companies and sole proprietorships that meet certain eligibility requirements. Depending on your business needs, you can apply for the SME Working Capital Loan (WCL), Trade Loan, Mergers and Acquisitions loan, or Project Loan, each having its own criteria and cap amount limit. When choosing a loan option, ensure it complements your objectives to reap its full financial benefits. Reading through all terms carefully is recommended before signing any contracts or agreements. Seek professional advice from qualified legal professionals, if needed, to avoid potential pitfalls when repaying the borrowed funds at the due date ends up being more complicated than initially anticipated. Ultimately, this helps safeguard you against possible risks brought about by unforeseen market conditions.
SME Working Capital Loan (EFS-WCL)
You might consider the Enterprise Financing Scheme (EFS) SME Working Capital Loan if you're looking for short-term liquidity support. This loan gives businesses up to S$5 million to finance their daily operations and working capital needs and cover trade receivables or inventories when needed. It features low-interest rates with flexible repayment schedules of up to 7 years that adjust according to your business's cash flow cycle. Furthermore, this lending option is especially attractive for small companies seeking fast funding solutions. It has a built-in risk-sharing feature that helps reduce the cost of financing in case of financial difficulties during the loan period. This provides some insurance against potential risks, making it an appealing choice.
Trade Loan (EFS-TL)
The EFS-TL provides insurance coverage on loans of up to 80%, and it's designed for businesses that require larger amounts of working capital to support their growth. As the name suggests, this type of loan can be used by companies importing or exporting goods and services. The key features of this government-assisted trade loan include flexible repayment terms, lower interest rates compared to bank loans, and additional security through an overdraft line facility from banks. Companies looking to finance upfront costs related to international transactions will find it beneficial, as no collateral is required when applying for the scheme. It also offers cash flow management benefits, such as extended payment periods for supplier invoices, which helps businesses maintain a positive financial standing even during volatile market conditions. Furthermore, international buyers benefit, too, since they receive payments made quicker under local currency over a longer period, reducing foreign exchange risks significantly.
Mergers and Acquisitions Loan (EFS–M&A)
Consider applying for the Mergers and Acquisitions Loan (EFS-MandA) if you're looking to acquire an existing business. It offers a concessional loan of up to $15 million over 3 years, with repayment terms ranging from a 1-year minimum to 7 years maximum. This financing scheme can be used for takeover or merger deals extending your enterprise's growth prospects. The EFS-MandA is applicable only when one local SME takes control of another, which should have no more than 200 employees each as of the date preceding the application date. It makes sense for anyone considering MandA activities to explore all options before committing financially. This is particularly true with the government-assisted financial aid product specifically designed for these kinds of transactions. Doing so reduces the risk associated with MandA operations and ensures achieving the desired objectives successfully.
Project Loan (EFS-PL)
The EFS-PL is worth considering if you're looking for financing to cover your business expansion or rebuild needs. It offers a repayment period of up to 10 years allowing businesses to borrow larger sums at an attractive interest rate. The loan also provides additional flexibility in terms of standardized collateral, such as corporate guarantees instead of personal ones, which makes it easier for smaller companies that lack these required assets. Businesses must note that they're liable if they fail to meet their debt service obligations towards lenders unless insolvency procedures have been declared beforehand. All borrowers should always be certain before taking on any loans, whether from private sources or those provided by Enterprise Singapore. Finding the right government-assisted business loan for you can be a daunting process. Knowing which scheme best suits your situation and understanding their repayment terms is key to making an informed decision. That's why ThinkSME has put together this guide to help you understand your options before taking on debt. We want entrepreneurs everywhere in Singapore to make smart financial decisions so they can succeed. Contact us today. We'd love to hear from you!