The 5 Best Loan Options for SMEs

Around six in ten Singapore SMEs rely on bank loans for financing. Subsequently, a sizable chunk of local SMEs is underserved, or even unserved, by financial institutions. Meanwhile, a Visa and Deloitte study on Southeast Asian SMEs shows that 72% of Singapore SMEs surveyed in 2013 faced cash flow problems – an increase of 10% since 2011.

57% of Singapore SMEs are actively seeking financing to get working capital, but SMEs still face various challenges ranging from lack of collateral to lengthy loan processing time. Bank loans may be the most obvious financing choice for SMEs, but there are other options to raise capital, ranging from more traditional resources like family and friends to alternative financing such as P2P lending and digital loans. Read on to learn more about the option that is best for you.

Family Loans

A financing option as old as time, loans from those near to you have advantages. It’s easy and flexible; you can negotiate repayment schemes. Loans from family and friends are great if your credit history isn’t spotless or if you’re young and your credit history isn’t sufficient. Of course the ultimate con to this option is that the professional becomes personal. You put your personal relationships at risk if you fail to repay your loan. To combat misunderstandings, written agreements are recommended. Document all terms and conditions so everything will be clear.

Credit Card

Small business owners often use credit cards to finance their enterprises. This method is easy and fast. But using credit cards is an expensive way to finance small businesses, particularly if you have bad credit. Remember that a card issuer will determine annual percentage rates based on your personal credit scores.

Venture Capital

You can gain capital by seeking attention from a venture capitalist. Yet this method is not for everyone; it is most suitable for start-ups that are in early stages of development and need a lot of money to grow. These days, venture capitalists look for technology-driven businesses and companies with high-growth potential in particular sectors, such as information technology, communications, and biotechnologies.

Invoice Financing

Invoice financing is a way for businesses to borrow money based on their amounts due from customers, essentially trading invoices for a quick loan. Once the business’ client has resolved his invoice, the borrower can repay his loan. This method improves cash flow and allows small businesses to quickly finance their next project without having to wait for their customers to pay them.

P2P Lending

SMEs tend to need loan products that are fast. P2P lending, a form of debt financing that allows individual investors to loan funds to borrowers via an online platform, can be the best solution for lack of SME financing. P2P lending offers advantages, such as speedy online application, faster processing and disbursement, and no requirements for collateral.

Which of the loan options above is best for your business? You know best. Good luck!

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  1. Pingback: 5 Steps to Optimize Your Chance for SME Financing Approval – Funding Societies

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