Small businesses are the engines of the economy. Starting a small business is an excellent idea but you’ll need capital – either self-generated or borrowed – in order to get the ball rolling.
A business loan could be the answer, but there are several different types of financing that you may be eligible for. There are many options available to businesses, so it’s worth exploring your options.
You should also take various factors into account when looking at different types of business loans, as not all of them will suit your needs.
If you don’t have time to wait to receive approval for a long-term loan, a short-term business loan may be the perfect solution.
Find out how to find the best short term business loan, as well as the benefits, risks, and funding solutions available.
What To Consider
The first thing you should do is determine how much money you will need for the short-term business loan.
Don’t forget to include start-up costs such as furniture, fixtures, inventory, and marketing materials. You’ll also need money for operating costs, licenses, and insurance.
While you’re figuring out the amount you’ll need, don’t forget to account for unexpected expenses.
You’ll also want to look at your credit history. You should know that most lenders will pull out your credit report when you apply for a business loan. Bad credit could put you at a disadvantage.
There’s some good news, though – there are a few things you can do to boost your credit score before applying for a short-term business loan.
You should pay off any outstanding bills and work to keep your current credit card balances low.
Types Of SME Loans
There are several different types of short-term business loans. You’ll want to start by researching the various types of loans and finding the one that suits your business plan the best.
Once you know which loan is best for you, you can start applying for the money you need.
The following is an overview of some of the most popular SME loans.
Working Capital Loans
You can consider a working capital loan if your SME requires quick cash for day-to-day expenses such as payroll, rent, or energy payments.
Despite having higher interest rates, working capital loans can be quite helpful for companies that require rapid liquidity while they wait to receive payments from their clients.
This loan type allows you to obtain a loan based on unpaid customer invoices.
In most cases, it might be a good fit for SMEs that need money because the goods or services have already been delivered, and the business has a reasonable expectation that it will be paid back.
The size of an SME’s invoices to clients often determines the availability of invoice financing. It can therefore be costly for your SME if it has few invoices.
This is ideal if you anticipate you will need short-term financing frequently over the course of a year or if your company’s financing requirements change over time.
The best option is to go for a flexible finance loan with no hassles on wait time and tight application requirements – exactly what revolving credit can offer.
Revolving loans allow companies to withdraw up to a predetermined sum at any time, but only pay interest based on the amounts borrowed.
Although there is typically a starting fee, there are no early repayment penalties with this kind of financing.
Your business will also require cash to scale up. In this case, you can opt for micro loans, which offer smaller loan amounts and shorter repayment durations.
They typically have higher interest rates than long-term loans, due to the fact that investors want larger returns for short-term investments.
But a micro loan might be the best form of funding for your company if the need for quick cash for your SME outweighs the disadvantage of higher interest rates.
What Can A Short-Term Business Loan Be Used For?
The best way to decide which business loan is right for you is to think about how you will spend the money.
The second thing to consider is whether you need to borrow the money.
The following five situations in small businesses could necessitate a short-term business loan:
To Cover Business Start-Up Costs
The main advantage of short-term loans is that they can be used to cover start-up costs for new and existing businesses.
Furthermore, these loans are often approved within a day. The lender may be able to overlook your credit report if you commit to making daily or weekly payments.
Purchase of Stock
Retail companies can benefit from short-term borrowing. For instance, if you need to buy merchandise well in advance for the holiday season but lack the funds, a short-term loan can help you to do so.
Similarly, you can use these loans as leverage to get quick turnaround goods for less to make some extra money.
Whatever the emergency, getting a short-term loan can help you get through it. You must, however, be quite certain about how you’re going to pay back that debt and not take any chances.
For A New Project
New ventures can have upfront expenses, such as hiring new staff during a peak sales period to increase sales. Such needs are frequently unanticipated – yet need to be addressed quickly.
Going for a short-term loan makes sense if you don’t currently have enough cashflow to cover upfront expenses. However, be sure you will be able to return it within a few months.
Due to their shorter-than-usual loan tenures, short-term loans are excellent for transient cashflow issues.
In fact, it is a wise choice to choose such loans if you can handle the pressure of making daily loan payments and are confident that your money will start to come in soon.
However, it is better to pass on a short-term business loan and look elsewhere if daily loan payments are difficult for your business model.
Comparing SME Loans
When you are comparing business loans in Singapore, the first thing you should do is figure out which ones are available to you.
Next, make a list of the benefits and drawbacks of each loan type.
Once you have a list of loan types, you can start to compare the details of each one by noting the interest rates, terms, and collateral requirements for each loan.
After you’ve compared all the options, you’ll be able to make a decision. In this case, be sure to choose a loan with a reasonably lower cost to your business, affordable interest rate, and a realistic tenure.
Where To Get A SME Loan
Now that you know how to find the best short term business loan, you can start applying for one.
You can find lenders that specialise in short-term business loans in Singapore by searching online. Make sure to read company reviews before you apply for a loan.
Keep in mind that there’s a lot of competition for these types of business loans, so you’ll increase your chances of getting a loan by applying with multiple lenders.
If you want to get your loan application completed as quickly as possible, you’ll want to start contacting lenders as soon as you have your loan amount figured out. Next, follow up with them until you get a yes.
When it comes to funding, banks are definitely the first place most SMEs turn to.
But various banks have different credit requirements. It would be wise to make the broadest comparisons possible among various bank products.
There are numerous banks in Singapore that offer SME loans to businesses. They include DBS Bank, United Overseas Bank, and OCBC Bank.
If you need the business loan urgently, you can also go to Lending Bee, a licensed money lender with four branches in Singapore.
Banks often take longer to approve loans compared to licensed money lenders.
Find the Best Short Term Business Loan
Now that you know how to find the best short term business loan, you can see how they are ideal for businesses that are just starting up.
If you have a solid business plan, start-up loans in Singapore are a great way to get the money you need to get your business off the ground.
So if you need a short-term business loan, make sure you apply as early in the process as possible. Be prepared to provide details about your business and your loan application.
Making sure your business has the right amount of financing will help you succeed. Therefore, start by researching different loan types and comparing various offers. In particular, you should check the business loan interest rate in Singapore.
Once you’ve found the best deal, apply for the loan and start using your new funds as planned.
We at Lending Bee are dedicated to meeting all of your different SME funding needs – whether you need funds for day-to-day business operations, to purchase fixed assets, or to expand both domestically and abroad.
No matter what you require, we provide a comprehensive range of financing packages that can help businesses from all sectors.
About Ashley Sim
Calling herself a “professional multi-tasker”, Ashley worked as a relationship manager in a bank for five years. She left her job just before the pandemic happened and became a freelance writer for about a year. Now, she’s making the most of her love for writing and knowledge of the banking and financial industry in her role as a content marketing lead. She hopes to help people make better financial decisions through her content and campaigns.