Did you know that about 90% of the world’s small and medium scale businesses are dependent on loans for their capital investments? Yes, according to a report of WorldBank, about 88% of the small to medium scale businesses use loans as their capital investments. They also stated that the small to medium scale business industry would collapse without these small business loans.
These loans are known as SME loans or SME financing. SME, Small Medium Enterprises loan is one of the best and most popular types of business loan used worldwide. There are thousands of vendors who are offering these loans to small businesses. But, how can you find an ideal SME loan vendor?
Don’t worry, and we’re here for you. In this article, we’ve written an ultimate article on everything you need to know about SME loans and how you can find a reliable SME loan vendor for your business.
Continue reading the article:
What is an SME loan?
So basically, Small Medium Enterprise loan (SME loan) is a term that refers to a loan offered only to businesses working on a small or medium scale. It’s not like your personal credit loan or large scale loan capital. An SME loan is different from that.
This type of loan is highly profitable for vendors, and on the opposite side, it’s profitable for borrowers. In the case of the lender, being a business loan, it holds all the characteristics of a business loan, but with a small loan amount.
On the borrower side, SME is fast, provides the needful amount of capital investment, saves your business from collapsing and offers a good payback timeline.
Benefits of SME
Before getting into details, first, have a look at what are the benefits of SMEs. SME business loans are not profitable for both parties. Here’s how:
Being a loan for small businesses, the value of SME loans is always small. It gives the lender an advantage to spend less on their borrower and use that saved investment in other projects.
Being a business loan, SME has the same interest rate as other large scale businesses. It means the lender will give you a small amount of money for a small business, but the profit will remain the same as a business loan for a large business. Lenders will make the same profit from these small investments as they make from large investments.
Short Payback TIme
As the payback amount is low in SME loans, the payback time is also shorter than in large-scale businesses. We all know, the profit of the lender is always dependent on the tenure of the payback. The shorter the payback time, the better it will be for the lender.
In this way, the SME gives the lender an advantage. Because, first of all, they’re investing small amounts of money, but the same profit as large investments, small investments and most importantly, short payback tenure.
In Singapore, SME business loan singapore are supported by the government as well. In countries, especially Singapore, the majority of the economy is based on small scale businesses. It’s because of their low-tax % and less expensive land cost, which makes it an ideal place for small businesses.
Their government supports lenders who offer SME loans. The government provides all the borrower’s security documents, performs the background check for the lender, and even the government resolves the payback issues between lender and borrower (always on the side of the lender).
Fast Loan Approval
The best thing about an SME loan is that you’ll get the loan in a matter of days. Especially in Singapore, the approval process of SMEs is even faster than the personal credit card loan.
It’s because the government is involved in this type of loan. They want to make the SME approval process fast and easy so that borrowers can start their businesses and support the country’s economy.
Longer Payback Tenure
Compared to personal credit card loans, the payback tenure of SME loans is always 40% longer than credit card loans. This makes it easy for small business owners to pay back their loan bills without any hassle easily.
For example, if the credit card loan pay date is 100 days, the SME loan pay date duration will be at least 140 days. It allows small business owners to generate more revenue and better flexibility.
Less Value Security Deposit
Unlike credit cards and large scale business loans, SMEs requires a very low-value security deposit. It’s because the lender will already have done your background check, so they don’t require high-value security deposits.
For instance, a credit card loan requires a passport, gold, property documents or car documents. In an SME loan, you can even use your national ID as a security deposit. It doesn’t require very valuable security deposits.
Best and Reliable Lenders for SME Loan
Many types of lenders may offer you SME loans. Below we’ve explained them:
Banks or Loan Brokers
Banks are the most popular and widely used lenders for any kind of loan. They are the most trusted, secured and professional way to get a loan for your business. Moreover, the bank offers extra advantages such as discounts, profits on your investments and an increase in loan payback tenure if needed. Another benefit of using bank as your SME loan lender is that they’ll give you your demanded money. There’s no shortage of money in the bank. If the bank likes your business plan, they’ll give what they think is enough.
However, one thing that you need to consider is the approval process. Getting your loan application from the banks is incredibly difficult. Bank will perform a very strict background check and deny your request based on a very small doubt. Conclusively, a bank is a good lender only if you get approved for the SME or you can get a SME loan broker to look for you at all the banks with the best interest rates.
Instant Loan Services
Instant loan services are the financial aid companies that only run on the loans. They are only made to provide loans to their borrowers and generate profit from the interest money. However, one thing you might consider is the loan amount. They usually don’t offer a high amount of loans as banks do. It’s because they don’t work on a huge scale as a bank. Therefore instant loan services can’t offer you huge amounts of SME loans.
Besides their disadvantages, one thing that sends them on the advantage side is the approving process. There’s no wonder that instant loan services offer the easiest process of SME loans. Moreover, in a 90% chance, they’ll approve your request and will issue you the loan without any hassle. Lastly, they merely ask for security deposits as the bank does!
Every country’s government wants to increase their economy. To raise the economy, businesses are needed, and for business, you need capital investment. That’s why most countries, including Singapore’s government, offer SME loans to small businesses. In that way, they promote businesses in their country which will eventually increase their economy in the long term.
The approval process in government’s aid isn’t so easy. However, the payback tenure is more extended as compared to private lenders. And in most countries, the government doesn’t charge any interest as private lenders do.
Things to Consider Before Choosing your SME Loan Lender
There are a few things that you might consider before choosing your lender. Below we’ve mentioned them:
Most of the lenders will first ask you to tell them your business idea. Of course, they are offering you a huge capital investment loan for your new start-up. The same financing company reserves the right to ask for your business plan.
Your request approval is mostly dependent on your business idea. The lender also knows that you’re going to repay the loan from the profit generated by your business. No success in business, no repayment and hence, the lender will be at a loss.
Loan Repay Tenure
Another thing you might need to consider is the loan repayment tenure. The duration and payment cycles state the when and cycle types of your repayment of the loan. The more repay tenure the lender will give you, the better it will be for your business. So make sure to consider the loan repayment tenure of the vendor. If you don’t, you may face trouble in future.
Most of the lenders give you at least 3-5 years of repayment tenure options. It’s because some business loans require years of tenure and aren’t your credit card loan which you can pay in a few months.
Interest rate is the most important factor to consider before borrowing the same business loan from the lender. Interest rate is the profit percentage of the total repayment that the lender will charge you. You’ve to pay for it. It’s the only way by which the lender will earn profit. HIgher the profit, the more extra money you’ll need to pay to the lender.
However, if it’s a government SME loan, then the profit percentage might be low or none based on the government’s policies. If you’re in Singapore, you’ll pay only 2% of interest if the government offers the loan.