Many businesses and entrepreneurs in Singapore are in search of business loans to fund their projects. Whether it’s a startup business or an expansion project, many individuals look to business loans for capital. However, the loan application process in the Lion City can be quite tricky to navigate because of strict requirements.
In this blog, we will discuss a few valid reasons why lenders in SG have high standards when it comes to business loan applications.
Reason 1: Higher Risk, Higher Scrutiny
Since money lenders are typically smaller companies compared to traditional banks, they are most likely to accommodate transactions the latter shy away from. It could include doing business with struggling startups or established businesses with lower credit scores.
Banks can lower their risks by offering bigger loan amounts on longer repayment terms. A registered money lender, on the other hand, does things differently.
Due to the risk associated with these borrowers, most lending companies enforce stricter criteria when choosing who to give loans to. Individuals with poor credit history or relatively new businesses are more likely to default on a loan, making them high-risk clients. Enforcing stricter requirements ensures borrowers can pay back their loans.
Reason 2: Shorter Terms, Faster Repayment
Unlike banks, money lenders offer shorter repayment periods on business loans. Borrowers might be disadvantaged here as they will be forced to pay the full loan amount within a shorter time frame, putting some financial pressure on them.
Lenders implement stricter measures to ensure borrowers can handle the burden of making prompt repayments on their loans. Borrowers must prove they have a sound business model that can generate enough cash flow to sustain regular loan repayments within the agreed-upon period.
Reason 3: Smaller Amounts, Mitigated Losses
Business owners and entrepreneurs in need of hundreds of thousands—or even millions—of dollars will do better approaching traditional banks. Unlike banks, lending companies give smaller loan amounts to businesses.
Smaller loans mean limited potential losses in case a borrower defaults. Doing this lets them take on riskier clients but still maintain strict criteria compared to banks. This calculated risk works for lenders because the potential reward (interest rates) far outweighs the possible losses (smaller loan amounts). The stricter borrower process protects the lenders’ interest allowing them to continue operating and serving the community.
Reason 4: Stricter Regulations, Responsible Lending
The beauty of living in Singapore is it has safeguards in place to level the playing field between borrowers and lenders. The Monetary Authority of Singapore (MAS) regulates lending through the Moneylenders Act and Moneylenders Rules. These ensure that moneylenders such as CompareSing and many others comply with responsible and humane lending practices to avoid predatory tactics.
Stricter requirements are a part of these regulations to prevent businesses from biting off more than they can chew. By enforcing these criteria, borrowers avoid taking on debts they can’t afford. This protects the financial well-being of both borrowers and lenders.
Reason 5: More Competition, Better Efficiency
As an economic hub, Singapore probably has one of the most competitive lending scenes in the region—if not the world. This high level of competition filters borrowers who have a higher chance of repaying their loans successfully from those who cannot. It lessens defaults and helps lending businesses endure and thrive.
Wrapping It Up
Stricter lending requirements shouldn’t discourage borrowers from taking out business loans. These should be seen as safety measures protecting both lenders and borrowers and ensuring their businesses thrive and succeed.
At the end of the day, moneylenders are great alternatives for those who don’t qualify for a bank business loan. They offer businesses and entrepreneurs access to the capital needed to make their goals realities.