Small and medium enterprises (SMEs) are the heart of any thriving economy, but they often face challenges when it comes to securing financing. For entrepreneurs dreaming big, getting a business loan is often a crucial step. But if your credit history isn’t great, it might feel like hitting a wall when applying for a business loan with bad credit.

So, can you actually get a business loan in Singapore if your credit score has seen better days? This article will offer much-needed insights and guidance for business owners who find themselves dealing with this dilemma.

Understanding the Consequences of Bad Credit

Just like in any country, a good credit score is like a golden key for business loans. A bad score, maybe largely due to late payments or too much debt, can make getting financing tough.

But don’t lose hope. Getting a business loan with bad credit isn’t out of the question. You just need to know how to play your cards right.

What Does Bad Credit Look Like?

Credit scores in Singapore go from 1000 to 2000. If you’re under 1500, lenders might see you as a risk. A score tagged “HH” means there’s been trouble in paradise with managing credit in the past.

Finding a Loan with Bad Credit

If a traditional bank business loan with bad credit seems out of reach, don’t worry. There are other paths to explore.

Non-Banking Financial Institutions (NBFIs)

NBFIs are more flexible than traditional banks. They look at your business’s performance and potential, not just your credit history.

Peer-to-Peer (P2P) Lending

P2P platforms link you with investors ready to bet on your business, often with better terms for those with a bad credit score.

Merchant Cash Advances

If your business has a good flow of card sales, this could be your ticket. This option is an advance on future sales. It focuses on sales volume over credit score.

Government-Backed Financing

Singapore’s government has schemes to help SMEs, even those run by individuals with bad credit. These often come with sweeter terms and lower rates.

Collateral or Guarantors

Putting up collateral or having a guarantor can boost your loan approval chances. It shows lenders you’re a safer bet, even with a low credit score.

Tips to Boost Your Credit Score

While improving your credit score might not be the most exciting task, it’s important for the health of your business. While you’re exploring how to secure a business loan with bad credit, dedicating some effort to improve your credit score can make a big difference. Below are detailed strategies you can follow.

Making Payments on Time

One of the simplest yet most effective ways to boost your credit score is by ensuring you pay all your bills and loans on time. Late payments can significantly dent your credit score. Think of each payment as a building block towards a stronger financial foundation. Setting up reminders or automating payments can help ensure you never miss a due date.

Remember that late payments don’t just affect your credit score momentarily. They can also leave a lasting impression on your credit history. Lenders view your payment history as a key indicator of your reliability as a borrower. By consistently paying on time, you’re showing lenders that you’re financially responsible. This can gradually improve your creditworthiness.

Manage Your Credit Utilsation

Your credit utilisation ratio is the percentage of your available credit that you’re using at any given time. Keeping this ratio low demonstrates that you’re not overly reliant on credit, which lenders favor. A good rule of thumb is to keep your credit utilisation under 30% of your total available credit.

Actively managing your credit utilisation can involve several strategies. Paying down existing balances and not maxing out credit cards are straightforward methods. If possible, you can also ask for higher credit limits on your cards (without increasing your spending), which automatically lowers your utilisation ratio. Monitoring this ratio regularly allows you to adjust your spending and payment habits as needed to keep it in the ideal range.

Regularly Do Credit Report Checks

Checking your credit report is vital for identifying any errors or inaccuracies that might be pulling your score down. Mistakes can happen, and they can range from incorrect personal information to outdated financial data. You’re entitled to credit reports from major credit bureaus, so take advantage of this to stay informed about your credit standing.

If you spot any errors, act quickly to dispute them with the credit bureau. This process can involve submitting evidence to support your claim. Correcting these mistakes can remove unwarranted blemishes from your credit history, potentially giving your score a significant boost. It’s a step that requires some effort but can have a substantial payoff in improving your credit health

Consider Debt Consolidation

Debt consolidation involves combining multiple debts into a single loan, ideally with a lower interest rate. This strategy can simplify your payments and reduce the amount of interest you pay over time. Consolidating your debt can also help lower your credit utilisation ratio, as you’re effectively paying off multiple balances and moving them to a single account.

Beyond simplifying your financial management, debt consolidation can also have a direct positive impact on your credit score. By making it easier to manage your debt and keep up with payments, you’re less likely to miss payments or overextend your credit utilisation. Additionally, paying off the balances on revolving accounts like credit cards can improve your credit mix, which is another factor credit bureaus consider.

It’s Possible to Get a Business Loan Despite Bad Credit

There are plenty of Singaporean entrepreneurs who’ve managed to secure a business loan with bad credit. It often involves getting creative with financing, managing credit wisely, and presenting a solid business plan. Show lenders your business has the potential to grow, and you can move past the bad credit obstacle.

The Bottom Line

Getting a business loan with bad credit in Singapore is tough but not impossible. All you need to do is to approach the process ready to learn and with a clear plan for your business’s growth.

While bad credit may narrow your loan options, it doesn’t have to end your entrepreneurial dreams. With determination and the right strategy, securing a business loan is within reach. Ready to apply for a business loan? We can help. Get a tailored business loan offer here.

Published On: March 2nd, 2024

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