The Average Cost of Small Business Loans 2024
It is important to consider the cost of financing your business through loans. That being said, it can be difficult to find and compare all of the various costs and fees associated with all loans available to your SME. Here, we summarise the available information from major banks and alternative lenders (P2P/Crowdfunding platforms) in order to detail the differences between costs associated with business loans in Singapore
Table of Contents
Average Cost of Business Loans
The average interest rate of a business loan can range from 4% to 20% depending on the tenure and the nature of the loan. Long-term and specific use loans typically charge lower interest rates than short-term and general business loans, as they provide a longer-term returns and less risk, respectively. Fees associated with business loans range from 1 - 5% of the total loan amount.
| Banks | P2P/Crowdfunding Platform | |
|---|---|---|
| Maximum Financing Amount | S$200,000 - S$10 million | S$200,000 - S$5 million+ |
| Tenure | 1 - 25 years | 1 - 36 months |
| Annualised Interest Rates | 2.5-10% | 0.8% - 20% |
Traditional Bank Business Loans
Banks are the largest source of business loans. They are also very experienced in lending to small businesses. Generally, banks offer business loans with longer tenures, lower interest rates, and fewer fees. However, they also feature with slower cash disbursement, lower maximum loan amounts, and stricter eligibility requirements compared to alternative lenders. Banks' business loans are great for well-established SMEs, which meet eligibility requirements and would prefer to avoid fees and high interest rate payments.
Average Interest Rate of Bank Business Loans
On average, banks charge around 4-10% of interest on business loans. These tend to be lower than alternative loans because banks are selective in their application process. Often they require that businesses have minimum operating histories of 2 - 3 years and minimum revenue of S$500,000 - S$1 million. Therefore banks are lending to the most financially sound and least risky SMEs, and therefore can offer the lowest interest rates. Compared to banks, P2P/Crowdfunding typically charge higher interest rates (9 - 20%), as they are not lending exclusively to experienced and financially healthy companies. SMEs that qualify for bank financing may save money on interest rate charges with a business loan from a bank compared to a P2P/Crowdfunding platform.
Average Fees of Bank Business Loans
Banks typically charge application fees and, in some cases, early-repayment fees for business loans. The application fees charged are generally S$500 - S$1,000 or 1 - 2% of the approved loan amount. These fees tend to be slightly lower than those of P2P/Crowdfunding platforms (2 - 5%), though it is important to make comparisons on a case by case basis, as the ranges are not drastically different.
| Bank | Application Fee | Early Repayment Fee |
|---|---|---|
| Citi | Unknown | Unknown |
| DBS | > S$500 or 2% of loan amount | 2.5% of principal amount |
| Maybank | Exists, amount not disclosed | Unknown |
| OCBC | Unknown | Unknown |
| Standard Chartered | > S$400 or 2% of loan amount | 3% of early payment amount |
| UOB | 2% of approved loan amount + S$500 annually | 4.8% of loan amount |
Average Amounts of Bank Business Loans
Banks tend to offer business loans of up to S$300,000 - S$550,000 over up to 3 - 5 years. These loans tend to have fixed repayment schedules and therefore offer less flexibility and customisation than P2P/Crowdfunding loans. SMEs that require more than S$550,000 should consider applying for P2P/Crowdfunding business loans.
Alternative Small Business Financing
P2P/Crowdfunding gives SMEs access to funding raised by a pool of individual investors. This process circumvents bank eligibility requirements and gives funding access to SMEs that may not be eligible for bank loan. Additionally, these loans tend to disburse cash much more quickly than banks (some in as few as 1 - 3 business days). When considering the best source of financing, P2P/Crowdfunding business loans can be a great option for SMEs that require large, customisable loans or those that are not eligible for bank loans.
Average Interest Rate of P2P/Crowdfunding Business Loans
P2P/Crowdfunding platforms tend to charge higher interest rates (9 - 20%) than banks (4 - 10%). Because P2P/Crowdfunding platforms have lower eligibility standards, they are exposed to increased risk and therefore charge higher interest rates. For SMEs that are not eligible for bank loans, higher interest rate costs may be an unfortunate reality of financing their company through P2P/Crowdfunding business loans.
Average Fees of P2P/Crowdfunding Business Loans
P2P/Crowdfunding platforms charge success fees, which are important to consider when applying for funding. Typically, these platforms charge a success fee that ranges from 2 to 5% of the loan amount. Additionally, some platforms charge application or early repayment fees. These fees are great than bank loan fees, but should be evaluated on a case-by-case basis as they are not too dissimilar.
| Platform | Success Fee | Application Fee | Early Repayment Fee |
|---|---|---|---|
| Capital Match | Exists, amount not disclosed | None | None |
| CoAssets | 3 - 5% | None | Unknown |
| Funding Societies | 2 - 5% | None | Subject to 2% on outstanding principal |
| MoolahSense | 4% | S$500-S$750 | Unknown |
| New Union | 3 - 5% | Unknown | None |
Average Amount of P2P/Crowdfunding Business Loans
P2P/Crowdfunding platforms offer greater maximum business term loan amounts compared to banks. MoolahSense offers loans of more than S$5 million. However, these platforms typically offer shorter maximum loan tenures (1 - 3 years) than banks (3 - 5 years). SMEs that need significant loan amounts and expect to be able to repay these large loans in 1 - 3 years might be well-suited for a crowdfunded loan.
Read More:
Stephen Lee is a Senior Research Analyst at ValueChampion, specializing in insurance. He holds a Bachelor of Arts degree in International Studies from the University of Washington, and his prior work experience include risk management and underwriting for professional liability and specialty insurance at Victor Insurance. Additionally, Stephen is a former US Peace Corps Volunteer in Myanmar (serving between 2018-2020), where he continues to provide business development consulting services to HR companies in Asia Pacific.