Why are Personal Loans the best way to fund a start up?

One of the biggest struggle that new companies face is the lack of track record or even an existing operation. Thus, it becomes almost impossible to obtain a traditional business loan. Even if a loan is obtained, it is likely that you might be faced with a high interest loan (possibly 3-4% per month). As such, when you actually do the math, a personal loan might actually be a way better option. Here’s a few reason why.

Enjoy lower rates

As new companies are often subject to high interest rates from alternative lenders (3-4% per month. Personal loans rely on your annual income and can go as low as 5-6% p.a. If you have collaterals, they can even be as low as 2-3% p.a.

Enjoy a higher quantum

Business loans are disbursed at a proportion of your revenue which is negligible for a start-up or pre-revenue company. However personal loans are provided at a multiple of your monthly income. This can stretch up to 8x for some banks which can be a good boost for your business.

Reduced Administration

Reduce the need for administration with a business loan which entails, monthly reporting, provision of financials and bank statements etc. With a personal loan all information required are often already captured through MyInfo with no documentation required.

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Here’s a classic path to your personal loan

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It all starts with your income

Depending on your annual income, you may be entitled to a loan quantum that is a multiple of your monthly income. See table below.

Maximum Loan quantum

Annual Income

Less than S$20,000

S$20,000 - S$30,000

More than S$30,000

More than $40,000

More than $120,000

Banks

Licensed Money Lender

Max S$3,000

As you can see, banks in Singapore only serve the segment earning more than $30,000 a year and can lend up to 8 times your monthly income. Thus, anyone earning less than S$30,000 can only borrow from a licensed money lender.

Individuals earning S$20,000 to S$30,000 are best served as they can borrow up to 6x of their monthly income. For individuals with no declared income, or income lesser than $20,000, the maximum loan they can obtain is S$3,000.

Second, your Credit Bureau Score

The second most important thing that many lenders see is your Credit Bureau Report. Here’s a quick guide to understand your credit bureau report.
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While there are many things to look at the report, the 3 things that can determine your eligibility are:
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1. Overall Grade
2. Presence of default or bankruptcy
3. Absence of score
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Factors

Overall Grade

Presence of default or bankruptcy

Absence of score

Banks

Min DD and above

Not eligible

Typically not eligible

Licensed Money Lender

No restrictions

Not eligible

No restrictions

How to check your credit score in Singapore?

To check your credit score, you’ll have to generate a credit report from the Credit Bureau Singapore (CBS). You can either

Request for a softcopy online or

Request for a hardcopy at SingPost outlets, the CBS office or CrimsonLogic Service Bureaus

Price
S$6.42 (incl. GST) + S$2.00 for multiple delivery modes.

You may collect your report within 2 hours at any SingPost outlet for an additional administrative fee of S$17.12.

Third, interest rates

As you can see, banks present a significantly cheaper option with rates ranging from 6-8% p.a. (EIR). Licensed money lenders on the other hand charge monthly interest rates and can go up to 4% per month. This is a upper cap regulated by Monetary Authority of Singapore (MAS).

Banks

6 - 8% p.a. (EIR)

1.5% processing fee

Licensed Money Lender

1 - 4% per month

2.5 - 7% processing fee

Understanding Interest Rates
When comparing personal loans in Singapore, you may have realized that each loan has at least two different interest rates.

Effective Interest Rate (EIR)
The effective interest rate, or EIR, must be stated alongside the advertised rate in Singapore. This includes processing and other costs, as well as the specifics of your repayment plan. In a nutshell, EIR displays the personal loan's "actual" interest rate as it takes into account the compounding of the interest as you make your repayment.

Annual Percentage Rate (APR)
The yearly interest earned by an amount charged to borrowers or paid to investors is referred to as the annual percentage rate (APR). APR is a percentage that indicates the real annual cost of money for a loan or investment over the period of the loan. This includes any fees or other expenditures incurred throughout the transaction, but does not include compounding.

Lastly, figure the tenor.

One of the great benefits of banks is that they can lend for an extended tenor up to 5 years which significantly reduces your monthly instalments. As for money lenders, because interest rates are almost 3-4x, it seldom makes sense for a loan to go past 2 years.

Banks

Up to 5 years

Licensed Money Lender

Up to 24 months

Share-backed Financing

3.6% p.a.
Interest Rate

Max 2 years
‍Tenor

0.5%
Processing Fee

Monthly Principal + Interest
‍Repayment Schedule

What is it?

A way to obtain liquidity from your investment by taking a loan against its value. You will need to custodise the security, making it not tradable during the loan period.

Type of applicable assets

Shares, unit trusts, bonds and money market funds (an open-ended mutual fund that specializes in short-term debt securities).

Loan-to-value (LTV) ratio

Depending on the security type, up to 70% of the assets' market value. The more stable the stock the higher the LTV. For example, if the market value of Share A is $1,000, financing of up to $700 may be offered.
Note: Should the LTV at any point exceed 90%, a top up may be required by the lender

Eligibility

Singaporean and foreigner allowed. Min annual income $100,000 or have $250,000 of transferrable assets. Min age 21.

Benefits

1. Solve short-term cashflow needs while participating in your investment upside (dividends and capital appreciation).
2. Get emergency liquidity on standby for your business needs through an additional cashline.
3. No impact on your long-term wealth planning and financial goals.

Quantum

Min $50,000, or max of up to 2x of your annual income or 2x assets with the loan provider.

Insurance-backed Financing

3.6% p.a.
Interest Rate

Max 2 years
‍Tenor

0.5%
Processing Fee

Monthly Principal + Interest
‍Repayment Schedule

What is it?

A way to unlock the existing value in your in-force insurance policy without giving up the protection and perks that the policy offers.

Type of applicable assets

This is only applicable to fully paid insurance policies with a surrender value, and which were issued by reputable insurance companies.

Loan-to-value (LTV) ratio

Up to 90% of the latest guaranteed surrender value. However, the final financing amount will depend on the insurance policy’s latest guaranteed surrender value, while the LTV ratio will depend on the type of policy, and the company that issued the policy.

Eligibility

Singaporean and foreigner allowed. Min annual income $100,000 or have $250,000 of transferrable assets. Min age 21.

Benefits

1. You free up liquidity for your cash needs.
2. You can continue to enjoy coverage from your policy without having to surrender it.
3. Reap the benefits when your policy appreciates.
4. You can continue with your wealth planning and long-term financial goals.

Quantum

Min $50,000, or max of up to 2x of your annual income or 2x assets with the loan provider.

Why get your property loan through Lendingpot?

Why get your Start Up Loan through Lendingpot?

A team that will support you

We have a dedicated team that will walk you through your entire loan process and help you do the market research you need.

We let lenders compete for your loan

Be ready to be spoilt for choice when we help you compare the best deals across all banks and non-banks so you only get the lowest interest rate and the highest cash out amount. Our rates are same as what the banks can offer or even better.

Save time in a single application

Compare across over 45 lenders in just 1 application.