SME Working Capital Loan: What Is That and How Do You Apply for It?

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Are you an entrepreneur who has recently started a business? Finding it difficult to access business loans from traditional financial institutions time and again? SME working capital loans offered by banks and financial institutions can help you. The process is fast, easy, and secure. So, how can working capital loans help your business operations?

What is a working capital loan?

The name states it all—a working capital loan should be taken to cover the additional capital of a business. With this fund, a company can pay for its day-to-day operating costs, such as debt payments, payroll, and inventories. This type of loan is beneficial for businesses that sell seasonal products or experience fluctuating sales. For the same reason, the working capital loan has become an in-demand financing option during the pandemic.

In Singapore, the government has worked with banks to provide SME working capital loans under the Enterprise Financing Scheme (EFS). With a maximum loan of $300,000 per borrower, an SME loan is thought to be a safety net for SMEs in Singapore and a stepping stone to revive the state of the economy. 

How does it differ from other business loans?

Generally, a working capital loan is short-term since its function is to finance the operating costs of a business, not its long-term assets. The repayment period can be as short as four months. In most cases, a working capital loan requires no collateral (unsecured loan), allowing young businesses to apply for it easily. But this also means a higher interest rate.

As for the government-aided SME working capital loan in Singapore, the maximum repayment period is five years with 50% government risk sharing. SME working capital works best to cover only operational expenses despite its large loan quantum. Not to mention that this loan is only available for registered local businesses with under 200 employees or less than $100 million in revenue. This is unlike other types of business loans—like term loans, invoice financing, or revolving credit—that can mostly cover other business expenses.

What’s the catch?

You can relax because there are really no ifs or buts to working capital loans. As long as your business meets the requirements, you too can apply for it. However, you should be prepared for the possible challenges ahead when applying for a loan:

  • Credit score: it can be difficult for entrepreneurs to apply for a loan if their credit score is low or nonexistent. Those who have never had a credit card or taken a loan will make it harder for them to be seen as trustworthy borrowers by banks or financial institutions.
  • High loan, low revenue: A newly-developed business may require a large sum of money to help them operate. However, their low revenue can hinder them from getting the money they need—though it’s more than possible for them to get a loan with a smaller amount.

How to apply for an SME working capital loan

The process and requirements depend solely on who the lender is. Nevertheless, the essential guide remains the same. Here are the general steps for a working capital loan application:

  1. Estimate how much money your business needs: Refer to your financial reports to determine the estimated operating costs needed. The loan should keep your business afloat for the foreseeable future.
  2. Compare your options: It’s not a one-size-fits-all. Perhaps a working capital loan is not enough to help your business. In that case, you can opt for customisable financing options.
  3. Prepare the documents: Don’t risk your application being rejected just because you forgot to upload one document. Read the requirements and prepare all the documents beforehand.
  4. Submit your application: Fill in the form (online or offline) and send it along with the required documents. If you have any questions, don’t hesitate to contact customer service.

 Keeping a small enterprise running requires healthy cash flow. If you have a viable business, don’t let the lack of financial access stop you from executing your plans. Banks and conventional financial institutions aren’t the only ones providing SME working capital loans.

The advent of FinTech platforms offering SMEs business financing means that entrepreneurs can also get business loans from digital financing platforms like Funding Societies. When underwriting businesses, the FinTech company looks at alternative data such as transaction information and supply chain reviews. In addition to that, many digital financing platforms also offer digital contracts, so you don’t have to fill out cumbersome and time-consuming paper forms.

Digital financing platforms make SME working capital loans  a reliable way to grow your business.

 

Disclaimer: The information provided to you in this blog post is intended only for general information purposes only and does not constitute legal or other professional advice on any subject matter. The materials and the information provided are not intended to be and do not constitute an advertisement or solicitation.  In no event will Funding Societies be liable to any party for any direct, indirect, incidental, special, consequential or punitive damages for use of such information by you or any unauthorized third party.

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