That simplicity is real, but it also hides the part that matters most, which is time.
If you repay S$135,000 on a S$100,000 loan, your borrowing cost is S$35,000. On its own, that sounds like 35%. A lot of owners stop there, because the number looks like a flat price for the facility. The trouble starts when that loan only runs for a few months, not a full year.
Take a six month term, which is common for this kind of short-term SME funding. That same 35% cost is being charged over half a year, so the annualised cost is roughly 70%. Even a 1.3 factor rate on six months works out to about 60% APR. On S$100,000, that is S$30,000 in borrowing cost for a facility that lasts about two GST quarters.
That is nowhere near a normal bank loan.
Bank SME loans in Singapore often land around 7% to 9% per annum on an effective basis, depending on the lender, the company’s profile, and whether collateral or a personal guarantee is involved. Even if we give the non-bank side credit for faster approval, the pricing gap is still very wide. A 60% annualised cost is not a slightly more expensive bank loan. It is a different category of product.
The maths gets worse as the term gets shorter, and this is the part marketing pages tend to glide past. A factor rate of 1.25 does not mean “25% interest” in any useful yearly sense. If that 1.25 applies over six months, the annualised cost is already well above 50%. If repayment happens faster, the effective yearly rate climbs again.
A 1.39 factor rate over roughly six months is about 92% APR. On S$100,000, that means S$39,000 in cost attached to a facility that may be gone before your next major inventory cycle settles down. I had to stop for a second when I looked at that one, because some owners will see “1.39” and think they are comparing it with a 13.9% or 39% yearly price. They are not.
This is also why monthly pricing can be more honest, even when it looks ugly. Singapore alternative lenders often charge around 1% to 4% per month for bridging. That is expensive, but at least the timeframe is clearer. Licensed money lenders go higher still, often around 4% to 8% per month, which tells you where these products sit on the risk ladder.
To be fair, I get why factor-rate lending appeals to people. If payroll is due on Friday, a supplier will only release stock after payment, or a large receivable is stuck 45 days out, speed can matter more than elegance. A neighbourhood F&B operator heading into a festive rush may care less about annualised cost than about having enough cash to buy stock this week.
That does not make the pricing harmless. It just means the loan may still be rational in a narrow situation.
For most Singapore SMEs, that situation is urgent bridging with a clear exit. You know exactly how the facility gets repaid, the margin on the underlying sale comfortably covers the financing cost, and the short-term loan is solving a timing problem rather than a profitability problem. If the business already struggles to generate cash, expensive money usually makes a bad quarter more expensive.
So if you are looking at a Bizcap-style offer, ignore the factor rate for a moment and calculate three things in dollars. First, the total cost on your actual loan size. Second, the term in months. Third, the annualised rate. Once you do that, the decision gets much less foggy.
Fast money can be useful. It is just rarely cheap, and a factor rate is one of the tidier ways to make that easy to miss.