Entrepreneurs are the backbone of every economy. Singapore is no different. As a country, the Lion City is known for its innovation and entrepreneurial spirit. Many of its residents have dreams of starting their own businesses. Countless individuals have brilliant ideas matched with passion and ingenuity. But it takes more than that to get a business off the ground. You will need access to sufficient funding to get things going. 

Enter business loans. These loans fuel entrepreneurs’ dreams and help realize them. However, the lending landscape can be quite tricky to navigate, especially if you’re a first-time entrepreneur. You need to have an idea of what’s ahead if you plan to borrow money from a bank or a lending company. Here are five facts you must know: 

You Have Plenty of Options

In Singapore, lending options are everywhere. If you only knew how and where to look, you could get a loan that fits your financial needs and repayment ability. For first-time entrepreneurs in need of financing for their business ventures, here are a few options: 

• Bank Loans: Securing a bank loan almost always requires a solid credit history, but banks give competitive interest rates at longer repayment periods.

• Government Grants: One of the ways the Singapore government supports business-minded individuals and entrepreneurs is by way of various grant programs. Although they have stricter eligibility criteria, they more than make up for it with lower interest rates and no repayment requirements.

• Venture Capital: If your business idea has a high growth potential, you may want to consider this option. Venture capital offers significant funding in exchange for an ownership stake in the company.

• Licensed Money Lenders: Lastly, legitimate money lenders are a great source of funding, especially for those with a very limited credit history or who need quicker access to capital. 

Your Credit Score Matters

Lenders typically look at credit scores first to determine a borrower’s creditworthiness. A high credit score of 750 and above shows financial maturity making borrowers with this score more attractive to lenders. On the flip side, those with lower credit scores will most likely encounter rejection or higher interest rates, depending on the lender’s assessment of other factors. 

If you’re seriously considering a loan, we recommend improving your credit score to increase your chances of getting funded.  

You Must Do Your Homework

Whenever we talk about financial decisions, due diligence should always be a part of the discussion. It’s no different for loan applications to fund entrepreneurial ventures. It’s important to conduct due diligence so you can make informed decisions. Don’t leave anything to chance lest you want to end up neck-deep in debt. 

Here are a few things to think of:

• Verify Lender’s License: Make sure the lender is licensed by the Monetary Authority of Singapore (MAS). This step will give you peace of mind knowing that the lender you’re working with is legitimate and reliable, like 111 Credit.

• Compare Loan Packages: Another piece of the puzzle needed to make a wise business decision is comparing loan offers. Don’t jump on the first offer you get. Shop around and compare products. Each lender has something special to offer borrowers. Comparing loan packages will help you find the loan best suited for your needs.

• Read the Fine Print: No matter how overwhelming documents are, be very thorough when reviewing them. Read and understand every section and line of the loan agreement. If you’re confused about something, raise questions so the lender can clarify things for you. 

You Need to Have a Payment Plan in Place

Lastly, for first-time borrowers hoping to get a business off the ground, you need a sound and sustainable payment plan. While not always, lenders will want to know how you intend to make your money grow to ensure they get their money back. 

• Develop a Sound Business Plan: Securing a business loan is just the first step. Outline potential revenue streams and provide lenders with realistic financial projections. Include your operating costs and projected cash flow to further boost lender confidence. Knowing these things allows you to plan your finances responsibly.
• Maintain a Healthy Cash Flow: While this is no longer a part of the loan application process, a healthy cash flow enables you to make prompt loan repayments. To achieve that, you need to implement smart and effective business and financial management strategies. 
• Seek Professional Counsel: If you don’t have a mentor (we suggest finding one), you can talk to a finance professional for guidance. Financial advisors and consultants can give you valuable insight and support throughout the entire process.

Wrapping It Up

For first-time entrepreneurs, a business loan can be a very powerful tool in realizing their potential. By knowing what to expect—including the facts and realities of acquiring business loans—you can anticipate potential setbacks and make contingency plans. Just because it’s your first time doesn’t mean you can’t make wise business decisions like a veteran. As long as you do your homework and prepare accordingly, you’ll be alright.