When applying for a business loan, many small and medium-sized enterprises (SMEs) focus on the loan amount and interest rate, but overlook what matters most to lenders: risk assessment. Whether you're applying through a traditional bank, a fintech platform, or a government-backed scheme like the Enterprise Financing Scheme (EFS), understanding what lenders look for can significantly improve your chances of approval.
This article outlines the key criteria lenders evaluate when reviewing SME loan applications in Singapore and how you can prepare to meet them.
1. Clear Loan Purpose
Lenders want to know exactly how the funds will be used. A well-defined loan purpose demonstrates that you’ve thought through your financing needs and have a plan for repayment.
✅ Good example: “To purchase S$80,000 worth of inventory for Q4 sales, projected to increase revenue by 25%.”
❌ Poor example: “For business growth.”
2. Business Viability and Financial Health
Lenders assess your business’s ability to generate revenue and manage expenses. They’ll review:
- Profit & Loss statements
- Balance sheets
- Cash flow statements
- Bank statements (6–12 months)
A healthy financial profile shows that your business can handle loan repayments without strain.
3. Creditworthiness
Your credit score, both business and personal, plays a major role in loan approval. Lenders check:
- Repayment history
- Outstanding debts
- Credit utilization
- Defaults or legal actions
A strong credit profile signals reliability and reduces perceived risk.
4. Business Track Record
Lenders prefer businesses with a proven track record. They may consider:
- Years in operation
- Revenue trends
- Customer base and contracts
- Industry reputation
Startups may still qualify, especially under schemes like the EFS – SME Working Capital Loan, but may face stricter scrutiny or require personal guarantees.
5. Ownership and Structure
In Singapore, to qualify for government-backed loans like those under the EFS, your business must:
- Be registered and operating in Singapore
- Have at least 30% local equityheld by Singaporeans or PRs
Meet SME criteria (e.g., group revenue ≤ S$100 million or ≤ 200 employees)
6. Existing Debt Obligations
Lenders assess your current liabilities to ensure you’re not over-leveraged. Be transparent about:
- Other loans or credit lines
- Monthly repayment obligations
- Debt-to-equity ratio
This helps lenders evaluate your repayment capacity.
7. Collateral or Guarantees (if applicable)
Some loans may require collateral (e.g., property, equipment) or personal guarantees. While many SME loans in Singapore are unsecured, offering collateral can improve your chances or secure better terms.
8. Industry Risk and Market Conditions
Lenders also consider external factors:
- Is your industry stable or volatile?
- Are there regulatory or seasonal risks?
- How has your sector performed post-pandemic?
Being aware of these factors and addressing them in your application can strengthen your case.
Conclusion: Think Like a Lender
Understanding what lenders look for allows you to prepare a stronger, more strategic loan application. By presenting a clear loan purpose, demonstrating financial health, and addressing potential risks, you position your SME as a credible and trustworthy borrower, and ready to grow with the right financial support.
