Financing a business isn’t like getting a bank loan for a car or home. There are quite a few creative options out there to explore, on top of traditional methods.

First step: Bootstrapping

If you are able to fund the initial capital yourself, it is a safer route to take in your company’s infancy as it develops and your business concept matures.

Bootstrapping demonstrates your commitment and determination and it will give you time to achieve some major milestones before you take on risk by bringing in external funds. It will also enable you to test waters in your market, to see if your idea is really viable before you sign up for a business loan or investment.

Bootstrapping 101:

  • Use cash from savings
  • Borrow against assets, such as your home
  • Credit-card usage (but be careful with this method, more details follow)
  • Keep your day job
  • Depend on your spouse’s wages at the initial stage
  • Work part-time at your day job and/or do some consulting work elsewhere

You may also want to consider:

  • Leasing or borrowing equipment you need to acquire new, such as computers.
  • Negotiate trade credits (short-term credit extended to the business by suppliers, who allow ‘buy now and pay later’).
  • Buy office furniture used or from garage sales.
  • Join a startup incubator – Most provide free resources, including office facilities and consulting, but many provide seed funding as well.
  • Go as long as humanly possible without paying yourself.
  • Try to compensate advisers and consultants with in-kind services.
  • Rely on personal relationships to get things done for free.
  • Be diligent in your legal and tax research, and use lawyers and accountants to help you with real business issues, not basic education.
  • Be frugal everywhere.

Inner Circle

Entrepreneurs could also consider raising money from friends and family. But this is one to tread lightly on as relationships tend to become very awkward when money changes hands, even among family and the closest friends.

If you are considering this option, try to borrow the minimum – just enough capital to fund basic company operations. It is one of the fastest ways to finance the business and personal relationships may allow for flexible repayment schedules and better terms.

Using credit cards – Be very careful

Credit card financing is only suitable for short-term financial expenses, the kind you will be able to pay back quickly. Interest on credit-card loans are super high, so be ultra careful when you use your credit card for your business.

It may seem like an easy way out without having to deal with a mountain of paperwork or put up any collateral, but the high-interest rates may not make it worth the while to consider this method for the majority of the time.

Fail to pay your bills and your credit record will be in jeopardy, which will be detrimental in receiving any type of financing in the future.

Apply for government grants

Entrepreneurs should definitely consider grants disbursed and administered by the Singapore government.

There are more than 100 grants offered by various government agencies such as The Standards, Productivity and Innovation Board (SPRING), Infocomm Development Authority of Singapore (IDA) and the Media Development Authority (MDA).

Besides equity financing and cash grants, tax-incentive schemes such as Enhanced Productivity and Innovation Credit (PIC) are also available.

Government grants are definitely worth exploring due to the low cost of capital – some grants also come with tax breaks. They may even provide free technical assistance or networking opportunities.

But, like most things, there is some downside to applying for government grants.

Grants are popularly paid through two modes:

  1. Reimbursement basis
  2. Businesses are required to fulfil milestones beforehand

The following present issues especially if you’re cash-strapped but in need of funds asap.

Government funding also involves long and tedious paperwork and record-keeping, which takes up a lot of time and energy.

Going traditional with bank loans

In Singapore, most major banks such as DBS, OCBC and UOB provide loans to SMEs (small and medium-sized enterprises).

The two types of loan offered by local banks are secured and unsecured loans. Loans are ‘secured’ when a borrower is asked to pledge assets to the lenders as collateral.

On the other hand, loans are ‘unsecured’ when the borrower does not have to provide any collateral for the loan.

Secured loans are cheaper compared to unsecured loans. Entrepreneurs could also choose between fixed or floating interest rates.

Multiple loan options are available, such as overdraft facility, term loans and revolving loans.

Bank loans are a popular option for entrepreneurs as they get to retain full ownership of the business. But funding may take some time due to the lengthy application process, as banks have to verify credentials and details of the business before approving a loan.

Entrepreneurs also have to take into consideration that, with bank loans, full financing may not always be possible. Banks may only grant 70-80% of the sum applied for. Hence, you may have to seek an alternative source of financing for the balance.

Specialty lenders

Specialty lenders, operated by established companies, focus on extending credit to certain businesses.

Financing solutions provided by speciality lenders range from commercial loans to equipment financing. Before you consider going down this route, you should conduct detailed research as these lenders tend to charge higher interest rates than banks.

But there is a unique upside to this type of loan. Unlike a bank loan, you will have the opportunity to tap into the speciality lender’s broad industry knowledge to help your business.

Crowdfunding (Debt-based)

Crowdfunding works by pooling money from a group of people to invest in a venture through traditional and online media platforms.

There are three forms of crowdfunding – reward/donation-based, equity-based and debt-based.

Debt-based crowdfunding is becoming an increasingly popular financing channel. In this model, the crowd lends money directly to business owners and expects repayment over time with a fixed rate of interest.

One issue with this type of funding is that businesses should have proven cash flow for at least one year. Locally, there are a few companies which offer debt-based crowdfunding services. MoolahSense is the pioneer in the industry in Singapore.

Benefits of debt-based crowdfunding include:

  • Obtaining full external financing while still retaining complete control of the business
  • Bypassing time-consuming application process for a bank loan or disbursement of government grants
  • Ability to manage the cost of funding, as business owners decide on the interest rate and the amount of money they need to raise
  • No collateral required


New businesses that face cash-flow problems may consider selling their invoices or accounts receivable to specialised companies called factors.

After checking out the credit-worthiness of billed customers, factors may advance you most of the invoice amount. After payment, the factor remits the balance, minus a “ factoring” also known as the transaction fee.

Factoring provides companies quick access to money, rather than waiting the usual 30 or 60 days for payment. By using a factor, you may get 70-90% of the billed amount within 24 to 48 hours.

Most businesses use factoring in the early stage before establishing a solid credit history. As factors focus on the financial soundness of clients, not the business itself.

Factors such as Bibby Financial Services can help alleviate your company’s cash flow problems and provide a bit of breathing room while the business grows.

But one thing to note is that factoring service can be costly so check out the fine print carefully before you sign up.

Choosing the right financing option

Ultimately, entrepreneurs could opt to use one or a combination of all the options presented above to fund their businesses.

Given the various benefits and limitations of each option, the real challenge lies in knowing which financing channel fits your company’s needs to get the best possible result.

Getting advice and starting your network

You can join the Action Community for Entrepreneurship (ACE), which offers resources, networks and mentorships for entrepreneurs.

8 Business Financing Options That You Need To Know
Photo: NTUC Secretary-General Chan Chun Sing with ACE startups

ACE is also affiliated to NTUC via the latter’s U Associate program to reach out to more working people and bring them into the expanded Labour Movement network, which includes unions, professional guilds (like ACE), SMEs, startups and freelancers.

You never know who you will meet who may find your business proposition exciting, and partner you in some way. Having a wider network helps when you are looking for business solutions, financing, mentorships and just friends to support your new business.

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