Businesses need to have access to a reliable source of funds to run their day-to-day operations. A shortage of finance at a crucial time can have serious consequences for any organisation.
According to a recent Singapore Business Federation and DP Information Group survey of 3,600 SMEs, raising finances is being viewed as an increasingly difficult task. Those polled say that over the last four quarters, their access to financing has been consistently declining. 
Raising funds requires specialized skills and many SMEs approach this task in an ad-hoc manner that can result in higher interest rates or outright rejection in their applications.
Unless you handle the job of raising business loans for your SME very carefully and in a systematic manner, you could set your business back in terms of lost opportunities and lower sales.
Worst of all, you could damage the reputation that you have carefully built up over the years if you are unable to make payments that you have promised.
Here is what you need to do to ensure that you go about your fund-raising exercise in a manner that provides your business with the ability to get business loan in Singapore at the best rates and at the correct time.
Approach Banks And Financial Institutions
This is probably the most important decision that you have to take and also the most difficult. It is important because approaching the wrong bank can result in a lengthy and tedious application process that may ultimately result in your application being rejected.
Deciding which bank to approach can be very confusing. Most of them present their loan facilities in very general terms and it is practically impossible to get an idea of whether your SME company will be able to get its business loan approved.
To add to the difficulty of the task of selecting a bank is the fact that each of them has a list of sectors which they can finance and another list of industries to whom they deem to be of high risk.
Banks also have internal limits for each industry they make loans to. You have no way of knowing whether the bank that you are approaching has achieved its target for the industry to which your company belongs.
Given the complexity of the problem, it may be best to approach an Singapore SME loan consultancy firm for their advice. Their experience and knowledge can be invaluable and result in massive savings for your company in addition to making the entire process of raising a loan much simpler and faster.
Understand Which Type Of SME Loan Is Suitable For Your Company
Banks and financial institutions have various SME loan products specially designed for SMEs. These are structured to address specific business needs and it is crucial that you apply for the right facility. There are also government assisted financing schemes such as the Enterprise Financing Scheme to help SMEs better access financing.
Other types of government assisted financing facilities that SMEs can tap into include the Temporary Bridging Loan Programme which might bear lower interest cost than banks’ commercial loans.
The lender that you approach will conduct its credit appraisal process on the basis of the type of loan that you have requested and its understanding of your ability to pay it back.
Even if you have strong financials and an established business, you are liable to be turned down for a loan if you apply for the incorrect facility.
Of course, you can submit a new application with the correct type of loan but the entire process can set you back by weeks if not months.
Briefly, the various types of loans that you can apply for are:
Business Term loans
These are for a period of one to ten years although most banks restrict them to five years. They can be used for the running of the business or general working capital.
This is a good option if you require money for the long term. Buying machinery or other fixed assets with a term loan is a good idea because the period for which the machine would remain productive could be matched with the tenure of the loan.
Trade financing facility can be used for domestic or international trade. Having an efficient and well-reputed bank on your side can make a huge difference to your operations.
If you need to import materials from overseas, you will need your bank to issue a letter of credit (LC) that assures your supplier of payment. While most banks offer this facility, you should identify one that is specialized in dealing with the countries that you import from.
While you may be able to get factoring services from banks, non-bank lenders can be more flexible in offering you a means of financing your receivables.
Factoring services essentially involve a lender giving you money against the invoices that you have raised on customers. When the customer actually pays, say after 30, 60 or 90 days, the money is taken by the factoring company.
Obviously, there is an interest element in the transaction with the sum you receive in advance being less than the invoice amount. Interest will be charged on the tenure of the invoice.
This can be one of the greatest boons for SMEs who need to sell on credit. An added advantage is that an SME that has been turned down by a bank may be eligible for factoring services from a non-bank lender.
Accounts receivable financing
Somewhat like factoring, accounts receivable financing allows you to raise funds against the security of the sales that you have made to your customers. The loan that you receive is secured against the amounts due to you.
Banks readily offer this facility to SMEs and are even willing to take over the task of collecting amounts from your customers.
As the name implies, a bank will provide a loan to purchase business premises, an industrial warehouse or a fixed asset like a ship or machinery. The loan will be secured against the asset that is financed in addition to other collaterals and guarantees that may be required.
Getting a loan of this type can be time-consuming with bankers asking detailed questions about your business, the asset to be acquired and the proposed use that it will be put to. It is best to start the application process several months in advance for this type of asset based loan.
Banks have extensive expertise in the area of project financing and their experience in raising funds for other borrowers can be of great advantage to you.
If you need to arrange funds for your project, you should identify a bank that is knowledgeable about your industry. While practically all banks cater to the entire range of projects, each is strong in a particular sector.
If you can identify the bank that best suits your needs, it can prove to be of immense benefit to your project.
Check Your Banker’s Lending Limit
When your company’s business loan application gets approved by a bank, a limit is imposed on the amount of money that can be advanced. This limit is usually set based on what you have asked for and the amount that the bank is comfortable advancing to you.
Many SMEs make the mistake of not keeping a close tab on the limit and its utilization. This can result in an unpleasant surprise in the form of non-availability of funds when you need them most.
If a bank is requested to increase the line of credit limit, it will ask for a great amount of information and then process your request over a period of several weeks. The entire exercise may even get delayed as the bank could ask for your company’s financials for the current period.
The best approach is to apply for an increase in limit well before you need it. This will give you adequate time to collect all the documents and information that is required. Additionally, since you will not be in a hurry to get funds you can even try to get terms that are more favourable to you.
Know Your Financials
As a business owner, it is essential that you are familiar with your financial records. Do not make the mistake of leaving the entire job to your accountant.
While you will have to rely on your finance department for its technical expertise, you should be familiar with your company’s balance sheet, income statement, working capital loan gap, and cash flow statement.
This is another area where an SME consultancy firm can be of great help. The consultant knows what banks and financial institutions look for when studying a company’s accounting records.
They can advise you on the type of information that you need to compile and submit to your bankers to help get your loan approved.
Make Sure That You Have A Good Personal Credit Record
When your company applies for a SME loan, it is important that as the business owner, you have an impeccable personal credit history.
If your credit card payments are delayed or you have a poor credit rating it can have an adverse impact on your company’s loan application. Spend a little extra time and make sure that all your payments are up to date.
Be Prepared To Wait
Although most banks advertise that they will convey a decision in a couple of days, the process usually takes longer than that.
The bank needs typically close to two weeks after the information that it has requested is submitted. So, if a query is raised a week after your loan application, the bank may need two weeks more once you submit the required details.
Of course, you could get a decision much sooner if the case is straight forward. If they are any concerns the banks’ credit approver might have on your application, they could raise queries or request for additional information. This would effectively delay the process by another one to two weeks.
But the worst thing you could do is to make a loan application and then keep asking the bank for approval.
Final Tips: Prepare Your Loan Application With Great Care
Your loan application and the other documents that you plan to submit to the bank should be carefully screened before they are handed over. Every bit of information that you furnish may be carefully studied and you could be asked for details to back up what you have stated.
Most banks also do not review subsequent applications for the next 6 to 12 months from the last application submitted date. If your business loan application is declined across several banks, that could derail your plans.
A SME loan consultant will be in a position to help you as they are aware of the type of query that can be raised by banks.
You can make the process of getting a loan simpler if you follow a few simple steps:
Keep a list of your existing loan facilities ready if any
Maintain an updated file with details of your financial reports and personal tax records.
Prepare a brief business plan and your projections for the next three years.
If the bank you are applying for a loan to is not the same one where you maintain your company’s account, keep copies of the last six months bank statements ready.
Many SMEs are denied financing by banks despite being credit worthy. The reason for this is poor paperwork and the inability to provide satisfactory replies to the bank’s credit approver on their financials figures. If your company can overcome this problem it will find the task of raising a business loan much easier.
And finally, begin the process of arranging finance as early as you can. This will help you source the most suitable bank for your business. Remember that it is much easier to arrange finance when you don’t really need it.
The worst time to apply for a business loan is when your company’s financial situation deteriorates. Plan and forecast your financing needs well in advance to position your company with the best chance of approval.