Most of us are taught from a young age to “never a borrower nor lender be”. But as with many adages, this is an oversimplification. In fact, it can sometimes be imprudent wipe out your existing funds, rather than use a loan. Here’s when you should use a loan in place of your savings:
Launching a startup is an exhilarating journey filled with hope, ambition and plenty of hard work. Singapore is no stranger to the highs and lows of starting a new business, with an estimated 55,000 startups calling the island home – nearly twice as many as a decade ago.
The fact Singapore is a hive of startup activity should come as no surprise, given the country has ranked in the top two of the global Ease of Doing Business rankings since 2006. A deep talent pool, world-class infrastructure and universities, a robust economy and ample local and international trade opportunities all contribute to Singapore’s reputation for nurturing successful new businesses. Government support also plays a role, with a range of financing schemes and support programs that aim to propel startups to success and encourage innovation that may be too risky elsewhere.
The challenge of securing finance
It’s no secret that launching a startup doesn’t come without its challenges, and financing is one of the biggest hurdles many entrepreneurs face during their brand’s infancy. Ecommerce businesses need to invest in inventory, packaging and other resources to get off the ground; product-specific brands demand big spending on research and development; and fast-growing startups of any kind need to recruit more talent and get access to working capital to enable expansion. It may manifest itself in different ways, but the challenge is the same for any startup.
How entrepreneurs can fund a startup
There are a range of pathways you can take to finance a startup in Singapore, from venture capital to a small business loan. Success is possible using any of these methods, but it’s important to carefully consider your personal circumstances when deciding which is best for your business.
1. Personal savings
Funding a startup out of your own pocket is a goal for many fledgling entrepreneurs, given it keeps the bank balance in the green and negates the need for debt. However, it’s difficult for most entrepreneurs to afford the significant upfront investment required to fund a startup, not to mention the potential for cash flow problems down the line.
2. Private investment from friends and family
An alternative to personal savings is sourcing the funds from friends and family who are willing to invest, as it offers the same advantages and can cover any gaps in your personal savings. But it’s likely you’ll need to offer part ownership in the company, and it can put a strain on your personal relationships if poorly managed.
3. Venture capital funding
Venture capital funds are always on the lookout for promising startups to invest in, and those who catch the eye of these funds can find themselves in an encouraging position. It’s worth noting, however, that venture capital funding is hard to come by and therefore not to be relied upon. You’ll also need to exchange equity with the fund in order to secure the investment.
4. Government schemes and grants
The Singapore government has a range of programs designed to foster promising startups in need of funding. These vary from fixed grants to percentage-based funding to financing for specific asset purchases – each can provide great opportunities to businesses with different needs. Schemes to consider include the SME Working Capital Loan, SME Fixed Assets Loan, Trade Loan and Venture Debt.
5. Business loans
The final option to consider is a business loan which, just like government grants, covers a range of financing options tailored to specific requirements. While you may not be in a position to apply for a loan at the very beginning of your startup, a loan can be a great source of funding during the early stages of growth. Loans are more suitable if you have already validated the potential of your core concept, ensuring you have a well-developed plan to turn the capital into further growth and revenue.
See our guide to business loans in Singapore and use our online platform to compare business loans that may be suitable for your startup. Remember to check the eligibility criteria of any loan before you apply, and take the time to research what meets the needs of your startup and whether you can comfortably afford the repayments.