6 Reasons Why SMEs Take Business Loans In Singapore

In Singapore, 65% of the economy is made up of SMEs. From e-commerce startups to financial products, there are all sorts of SMEs in the Singapore market. With a high saturation of competitors in different markets, growing your business is extremely challenging in Singapore. 

On top of stiff competition, SMEs also face the challenges of high rental costs and operational costs. In view of these challenges, taking up a business loan becomes part and parcel of the SME experience in Singapore. 

Here, we’ll be discussing some of the top reasons as to why SMEs in Singapore take up business loans.

Infographic on 6 reasons why SMEs take business loans
SMEs in Singapore take up business loans for a variety of reasons.

1. Accelerate Business Growth And Expansion

What do businesses do when they have excess cash? Is it better to store it up as surplus, or is it better to re-invest and grow their business? Most SMEs would choose the latter.

Not every SME’s goal is to expand but for those who want to diversify and step into new sectors, taking business loans to help them achieve these goals is a wise move. 

Many SMEs like private-hire and cashback platforms have expanded at an exponential rate in just a short period of time. Expanding quickly can help SMEs move into new markets and not rely on selling one type of service or product. 

Carousell, an online marketplace, for instance, started off as a simple platform for students to buy and sell textbooks. Now, you can find all kinds of goods, even flat and room rentals on the platform. Within a short period of time, the platform has evolved, attracting advertisers and a broader range of users. 

In order to stand out in such a competitive market, it’s important for SMEs to grow and diversify. 

And one way to do that is to have sufficient cash flow. Through taking up business loans, SMEs are able to utilise funds to expand their business and bring it to the next level. 

2. To Take Advantage Of Business Opportunities

This comes hand in hand with the point above. Businesses that want to grow and expand need to be opportunistic as well. 

After all, you can’t simply expand as and when you wish to. It’s important for businesses to identify key strategic opportunities to grow so that their efforts pay off.

Take Grab as an example. Grab first started off as a ride-hailing service but after a few years, they have ventured into the fin-tech space. With the launch of GrabPay, Grab is able to work with retail and dining merchants all across Singapore. Now, its ride-hailing service no longer drives most of its growth.

Through expanding into different industries at the right time, SMEs can withstand competitors in their sphere and also have more revenue sources. Through identifying the potential of fin-tech early on, Grab does not need to rely only on its ride-hailing service. This also means it is not threatened by new ride-hailing competitors in the market.

Opportunities come and go. There is no telling when a good business opportunity will present itself. 

By taking business loans, SMEs can seize the right opportunities at the right time. Instead of letting these windows of opportunity fly by, SMEs can make full use of funds and grow at the right moment.

Secure your business fund of up to S$300,000 with Capitall today and expand your business prospects.

3. Inventory And Equipment

Certain SMEs like gyms or ecommerce require lots of equipment and inventory. They have to continuously restock their inventory to keep up with client and customer demands. 

Gyms, especially, need to make sure that their equipment is well maintained, new, and in tip-top condition. Restaurants and cafes also rent equipment, especially when they are just starting out.

Businesses that require regular inventory restock and equipment rental will definitely need to have enough capital on their hands. Daily operational costs for businesses like these are costly and having enough cash to keep the lights on is the first of many challenges. 

Hence, getting a business loan can be a big help to these kinds of businesses, especially in the earlier years. 

With access to capital and funds on their hands, they can reprioritise their business goals and strategies.

4. To Iron Out Cash Flow Issues

Cyclical downturns are common and part and parcel of the experience of running your own business. There are seasonal demands and off-season periods that businesses have to endure. 

In times of cyclical downturns, it’s important to have enough access to funds to pay for operational costs and your workers’ salaries. 

As such, getting a business loan early on will prevent SMEs from scrambling when hard times occur. Oftentimes, SMEs foresee down season periods beforehand and take a loan when their business is doing well.

This makes it easy for their loan applications to go through. When cyclical downturns hit, they already have access to a pool of funds and will not need to worry about whether their loan application will be approved or not. 

Being able to project downturns early is key for many SMEs. Seasonal downturns are already challenging enough and they don’t want a rejected loan approval to add on to their problems.

There are many reasons why a business loan application might be rejected. But that doesn’t mean you should give up on applying. You can still secure a business loan if you take some active steps to improve your chances. 

5. Less Downsides Compared To Equity Financing 

No doubt, there are many ways SMEs get access to funds. 

Some SMEs turn to equity financing where they seek for funds through attracting shareholders to their company. The problem with this approach, however, is that it dilutes the ownership of the company. A good portion of the revenue will be allocated to shareholders, reducing profits for owners.


These are some of the advantages and disadvantages of getting equity financing.

Pros of equity financingCons of equity financing
You do not need to pay interest, but you will need to share profits.You give up full ownership of your company
If the business fails, the investors take the hit, not you.Your investors will have a say in your day-to-day operations, including business expenses
You do not need to make monthly payments until the business makes a profit. You may have disagreements and inconclusive meetings if your business vision and direction do not align.
Source: Equity Financing for Entrepreneurs 

Since SMEs aren’t large corporations that are earning high amounts of revenue, it’s wiser to take a business loan, as compared to equity financing. This way, you can access more funds without the commitment of sharing your business profits with investors.

Taking a business loan in Singapore also allows owners to maintain a higher degree of control over decisions and how the company should run. There’s no need to consider the shareholder’s input since you’re not tapping into their funds. 

Hence, SMEs can progress more quickly as owners can execute decisions more effectively.

6. To Grow Creditworthiness Reputation And Benefit From It

This might seem counter-intuitive, but not borrowing any loans could hurt your creditworthiness

When businesses borrow funds and pay them back in a timely manner, they prove themselves to be good prospects for banks and lenders to loan to. 

Imagine being put in a situation where you have to lend some money to a friend. Is it safer to lend it to someone who has a history of repaying on time? 

Or would you rather lend it to someone whose ability in repaying debts is questionable? Most of us would rather lend it to someone whom we know is trustworthy.

The same logic applies to loans. Having a strong track record of repaying debts builds trust between a business and its lenders. 

Being timely in repayments improves your credit score as it shows that your business has the ability to manage its finances well. 

For this reason, SMEs that need funds often take up business loans in Singapore as it can improve their credit score. Additionally, it also increases the approval rate of future business loan applications.

a businesswoman calling at the window while holding a laptop
It is common to take up business loans in Singapore to help your business stay ahead.

A Business Loan In Singapore Can Help SMEs In Various Situations

Depending on the business’ goals, SMEs take a business loan for varying reasons. Some businesses tend to have higher operational costs and need access to capital to keep the business running. On the other hand, some might need funds to help them expand and stay ahead of the competition. 

If your business is in need of funds and capital, taking a business loan could help you lift your financial burdens. 

Before you apply for a loan, though, it’s important to first consider what you will need these funds for. Here are some questions to ask yourself and your lender to help you make an informed decision

Feeling a little lost and unsure if getting a business loan is right for your SME? Professional advisers at Capitall can help you. Reach out today.

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