4 Ways Your Credit Score Impacts Business Loan Approval in Singapore

The latest report from the Department of Statistics Singapore revealed that 99% of businesses in the country are small and medium enterprises (SMEs). Opening this type of business is relatively easier, with fewer than 200 employees or an annual revenue of less than $100 million.

However, starting or expanding a business in Singapore often requires financial support, and securing a business loan can be pivotal. Your credit score is a critical factor that can significantly influence your loan eligibility.

Understanding how credit scores affect your business loan eligibility in Singapore can help you better prepare and improve your chances of securing the needed funding.

What is a Credit Score?

A credit score is a numerical representation of your creditworthiness, reflecting your ability to repay borrowed money. In Singapore, credit scores are typically provided by the Credit Bureau Singapore (CBS) and range from 1000 to 2000, with higher scores indicating lower risk.

These scores are derived from various factors, including your repayment history, outstanding debt, credit account history, recent credit inquiries, and the types of credit you have used.

Why Do Credit Scores Matter in Business Loans?

When an SME owner applies for a business loan, lenders assess the risk of lending money. After all, no one would easily hand over a significant sum of cash to someone they barely know, especially without sufficient proof that the borrower can repay the loan.

Your credit score plays a crucial role in this risk assessment. Securing a business loan in Singapore can be a strategic move to fuel your business’s growth, improve cash flow, and seize new opportunities. With the right financial support, SMEs can expand operations, invest in essential resources, and gain a competitive edge in the market.

Here are some ways credit scores impact business loan applications:

1. Assessment of Repayment Ability

A high credit score suggests a reliable repayment history, which assures lenders that you can likely repay the loan on time. Conversely, a low credit score signals potential repayment issues, making lenders hesitant to approve your business loan application in Singapore.

2. Interest Rates

Your credit score can also affect the interest rate you are offered. A higher score may qualify you for lower interest rates, reducing the overall cost of borrowing. Lower scores might lead to higher interest rates to compensate for the increased risk.

3. Loan Amount and Terms

With a strong credit score, you are eligible for larger loan amounts and more favorable terms, such as longer repayment periods. On the other hand, a poor credit score limits the amount you can borrow and results in stricter terms.

4. Collateral Requirements

Lenders may require less collateral, or none at all, if you have a high credit score, but will ask for significant collateral to secure the loan if you have a low credit score.

Keeping Your Credit Score on the Right Track

Small business owners can obtain credit scores from the Credit Bureau Singapore. It’s advisable to check your score before applying for a business loan to understand your credit standing and address any discrepancies or areas for improvement.

If your credit score is not where you’d like it to be, there are steps you can take to improve it:

• Timely Repayments: Ensure on-time payment of your debts, including credit cards and other loans. Consistent, timely payments positively impact your credit score.
• Reduce Outstanding Debt: Pay down existing debts to lower your credit utilization ratio, which is a key factor in calculating your credit score.
• Limit New Credit Applications: Frequent credit inquiries can negatively affect your score. Apply for new credit only when necessary.
• Review Credit Reports: Review your credit reports regularly for errors or discrepancies and have them corrected promptly, to ensure your score accurately reflects your credit history.
• Diversify Credit Mix: If managed well, having a mix of different types of credit, such as installment loans and revolving credit, can positively impact your credit score.

Get Higher Approval Rates for Business Loans in Singapore with Capital Funds Investment

While your credit score is a fundamental factor in determining your business loan eligibility, we understand that small business owners may not have what it takes to secure high credit scores.

Capital Funds Investment helps startup and small business owners find a stable ground to grow their enterprises in Singapore. We believe these types of businesses are the backbone of our economy, and it’s our job as licensed moneylenders to support budding entrepreneurs in achieving their first milestones.

Contact us today for more information about our business loans.