A lot of Singapore SMEs borrow for equipment the wrong way round. They take an unsecured term loan because it feels simpler, then use that cash to buy a van, oven, CNC machine, or production line.
Equipment finance is usually cheaper than the “fast cash” option
A lot of Singapore SMEs borrow for equipment the wrong way round. They take an unsecured term loan because it feels simpler, then use that cash to buy a van, oven, CNC machine, or production line.
That convenience can get expensive quite quickly. In Singapore, equipment loans backed by the asset itself often price around 3% to 6% a year, while unsecured SME term loans commonly sit closer to 7% to 12%. On a S$100,000 purchase, that gap is not a rounding error, it is several thousand dollars over a repayment cycle that might run as long as a COE period.
If the asset is the reason you need funding, asset-backed finance is usually where you should start.
What equipment financing actually looks like
Most standard equipment loans in Singapore fund about 80% to 90% of the asset value, with repayment periods usually stretching across 3 to 7 years. That is a fairly normal fit for equipment that earns revenue over time, whether that is a delivery vehicle, kitchen equipment, fabrication machinery, or medical devices.
Lenders are not treating all assets the same, which is where some business owners get caught out. New equipment is easier. Used equipment can still be financed, though banks often cap that at about 70% of a professional valuation, and the asset generally needs to be no more than 10 years old. A second-hand machine bought from a reseller is financeable in some cases, a 14-year-old piece of plant with no clear market value usually is not.
The broad idea is simple enough: the stronger the resale value, the more willing the lender becomes.
Hire purchase is not the same thing as a normal term loan
Hire purchase, or HP, is one of those products people think they understand until the paperwork arrives. Under Singapore’s Hire-Purchase Act 1969, legal ownership of the asset passes to you only after the final instalment is paid.
That matters more than it sounds. If you finance a commercial vehicle or equipment under HP, you get use of the asset immediately, but the financier retains legal title until the contract is fully settled. From a practical standpoint, that usually means less flexibility if you want to dispose of the asset early or restructure the facility halfway through.
There is also a tax angle worth knowing. Under hire purchase, capital allowances are calculated on principal payments only, which means your deposit and principal instalments count. The interest portion is handled separately, deductible under Section 14(1)(a) of the Income Tax Act 1947.
That is manageable, just not something I would leave to guesswork with your accountant after signing.
The EFS Fixed Asset Loan can be very useful
For many SMEs, the most relevant government-supported route is the Enterprise Financing Scheme - SME Fixed Assets Loan, usually shortened to EFS-FA. Enterprise Singapore launched it in October 2019, rolling several older schemes into one framework.
The scheme allows borrowing up to S$30 million per borrower, which is enough to cover far more than a single van or coffee machine. That size starts to matter for manufacturers, logistics operators, clinics, engineering firms, and larger F&B groups fitting out multiple outlets.
Eligibility is fairly broad by SME standards. Your group revenue must be S$100 million or below, or your group must employ no more than 200 people, and the business needs at least 30% local shareholding.
For equipment, EFS-FA can fund up to 90% of the asset value. Tenure can run up to 7 or 8 years for equipment, depending on lender structure, and as long as 15 years for property. The government risk share is typically 50%, rising to 70% for younger enterprises formed within the last five years, provided they have at least one employee and more than 50% individual equity ownership.
That risk share helps lenders say yes, it does not mean the government is paying your instalments. I wish that reminder were less necessary.
Lease or buy with debt?
Leasing appeals because it preserves cash and can be cleaner operationally, especially when the equipment may become outdated quickly. An operating lease also sits off balance sheet, rather than appearing as a liability in the way finance leases and hire purchase generally do.
That can suit businesses using equipment with short useful lives, or firms that care more about access than ownership. Think IT hardware, printers, or equipment tied to a contract that may not renew.
Buying with debt usually makes more sense when the asset will stay useful for years and you want the economic benefit after repayment. A bakery oven, a truck, or a production machine that should still be working long after year five often fits this camp better.
Where I’d start if I were comparing options
If the equipment is core to operations and should last, I would price EFS-FA first, then compare it with standard bank equipment finance and hire purchase. Hong Leong Finance is one provider offering EFS-FA for equipment with a fixed interest rate and tenure up to 7 years.
If the asset will date quickly, or you are uncertain about future utilisation, leasing deserves a proper look before you lock yourself into ownership.
The real decision is less about what sounds flexible, more about whether the asset will still be valuable to your business when the financing ends. That is usually where the right answer becomes obvious.
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