Do I Need a Loan to Start a Business in Singapore?

The World Bank’s annual survey for doing business lists ten categories, including the ease of setting up a business, and covers 190 countries. The indicators for starting an enterprise include the number of administrative procedures involved, the amount of time taken, the total cost, and the minimum paid-in capital as a percentage of income per capita. In Doing Business 2020, Singapore was ranked fourth in the world for starting a business, scoring 98.2 out of 100. Singapore’s business environment has led to small and medium enterprises becoming a driving force in the city state’s economy, with approximately 220,000 SMEs in 2019, mostly in the service sector. So, what do you need to start up a business in the Lion City? Administratively, it is a three-step process: first, register your business entity with the Accounting and Corporate Regulatory Authority (ACRA). Once registered, the business becomes a taxable company. Most companies apply to the ACRA as a private limited company since shareholders are only liable for debts within their total share capital contribution. Registering as a private limited company also makes it easier for growth. At this stage, the business only exists on paper, so the second task is to establish the company. That includes an ACRA approved company name, at least one shareholder, one director residing in Singapore, a minimum paid-up capital of S$1, and a registered physical address. After the business is incorporated, the final step is to open the company’s bank account. Depending on the type of business incorporated, other licenses, permits and registration require completion, including government permits for sectors in private education and child care, the distribution and sale of alcohol, banking and finance, and travel agencies. Other registration includes import/export businesses with the customs department, goods, and services tax if revenues exceed S$1 million per annum, and the registration with the Central Provident Fund, a state pension scheme. Starting any business requires an injection of capital to oversee the set-up and cash flow during the early stages. Many start-ups rely on a business loan as they provide cheap capital, ownership is retained by whoever set-up the business, the owner’s wealth is protected, and the loan enables the company to build business credit. However, a major constraint is being eligible for a business loan in the first place. The lender has to assess the risk involved in providing cash to an entity that has no revenue, credit history, financial records, or proof of success. What other options are available for business capital? A common way of finding capital to start a small business is by borrowing money from family and friends. The risks of failure to the owner are not just financial but also personal. Those approaches need to have a clear understanding of the business venture and the risks involved, as well as possible returns. The owner can also take out a personal loan, which is becoming easier with an increase in online lenders and tailored financial services. They are best used when a business requires funds quickly for new equipment or early-stage set-up. Another option is paying for expenses by credit card. The rate will depend on the personal credit rating of the owner, and the APR will be more expensive than other options. For the more tech-savvy, crowdfunding is a popular method of building capital, with the owner launching an online campaign to raise cash. Returns are given in gifts or equity and are regularly used by entrepreneurs who have a product and want to see its marketing viability. Singapore is an exciting country to open a small business. With its matured financial institutions and encouraging business environment, the Lion City will remain an international hub for businesses, both large and small.