The examples below are illustrations. They exclude product-specific charges unless stated, and they are not quotations. Always obtain the institution's formal repayment schedule and facility letter.

Flat-rate interest

With a flat rate, interest is calculated using the original principal throughout the tenure, even as principal is repaid.

A simplified illustration:

• Principal: S$100,000
• Flat rate: 5% per year
• Tenure: three years

Simple stated interest is S$15,000 before fees, producing a total scheduled repayment of S$115,000, or about S$3,194 a month.

The borrower does not retain the full S$100,000 for all three years, because principal is returned through the repayment schedule. For that reason, 5% flat is not equivalent to 5% calculated on the reducing outstanding balance.

Reducing-balance or monthly-rest interest

With a reducing-balance method, interest is calculated on the amount still outstanding. As principal falls, the interest charged for later periods generally falls too.

The exact repayment pattern depends on the product. Some facilities have equal total instalments, while others use different principal and interest schedules. Request the full repayment table.

What the difference is worth

Take the same illustration. A reducing-balance facility that produced the same monthly payment of roughly S$3,194 over 36 months would carry a rate of approximately 9.4% a year, not 5%.

That is the practical point. A 5% flat quotation and a 9% reducing-balance quotation are not five points apart. They may be close to identical.

This comparison is an arithmetic illustration on the stated assumptions, excluding all fees. It is not a quotation, a market rate or a claim about any institution's pricing. Recalculate against the actual schedule you are offered.

Why the shortcut fails

A common rule of thumb says to double the flat rate. In the three-year illustration above, doubling would suggest 10% against an actual figure nearer 9.4%. Over a one-year tenure the same 5% flat rate works out closer to 9.1%.

The multiple moves with tenure, payment frequency and fees. It is a rough sanity check, not a comparison method. The effective interest rate expresses borrowing cost after accounting for the repayment pattern, which is why MoneySense notes that the EIR of a flat-rate loan can be higher than its advertised rate.

Why net proceeds matter

A borrower may be approved for S$100,000 but receive less after an upfront processing fee or other deduction.

Compare the net cash received with all dated payments. If two offers require the same total repayment but one delivers less usable cash, their effective costs differ. Record:

• gross principal;
• deductions at disbursement;
• net proceeds;
• each instalment date and amount;
• final or balloon payment;
• compulsory fees;
• optional fees that are likely to apply.

Charges beyond interest

MoneySense identifies other possible costs such as processing, amendment, cancellation, excess, late-payment, default and early-repayment charges.

Business facilities can also involve legal, valuation, annual-review, security or third-party costs depending on the product. Ask the institution to identify every charge that may apply in the expected scenario, and in a downside or early-exit scenario.

Fixed and floating rates

A fixed rate remains unchanged for the period defined in the facility terms. A floating rate can move with its reference rate or review mechanism.

When comparing a floating-rate offer, test an increase rather than assuming today's rate will continue for the full tenure. The relevant question is whether the business can afford the repayment if the rate changes.

Compare offers on the same basis

For each offer, record:

1. Net cash received.
2. Repayment dates and instalment amounts.
3. Total interest.
4. Total fees and third-party costs.
5. Total amount paid.
6. EIR or an equivalent cash-flow-based measure.
7. Fixed, floating or review provisions.
8. Early-repayment and cancellation terms.
9. Security and guarantee obligations.
10. Consequences of late payment or default.

Use dated cash flows: positive net proceeds at disbursement, and every negative repayment or fee on its actual date. The institution's formal schedule and facility letter are the source of truth.

Cheapest and affordable are different tests

A shorter tenure often lowers total interest but increases each instalment. A longer tenure can improve monthly headroom while extending the obligation and total cost.

The offer with the lowest EIR may not be the best operational fit if it includes a large early-repayment charge and the business expects the cash need to end quickly.

Suppose Offer A has a lower total cost but a materially higher monthly instalment, while Offer B costs more over time but preserves a larger monthly operating reserve. Neither number decides it alone. Test:

• the lowest projected cash balance;
• the effect of a 30-day collection delay;
• the likely date of early repayment;
• the value of liquidity retained;
• the risk of floating-rate changes.

Affordability is a cash-flow test, not a rate test. Run it against a dated forecast: Build a rolling 13-week cash-flow forecast

Before accepting an offer

Ask for the advertised and effective rates where available, the complete repayment schedule, the full fee schedule, the net disbursement amount, an early-repayment illustration, an explanation of rate resets, and the security and guarantee documents.

Sources

• MoneySense — Costs of borrowing: flat rate, monthly rest and EIR

Figures verified on 3 August 2026. Scheme parameters, rates and lender requirements change — check the primary source before relying on any figure.

Fundwise is an intermediary, not a lender. This is general information, not individual financial, legal, tax, accounting or credit advice. Financial institutions run their own eligibility and credit assessments and set all terms — we cannot guarantee approval, rate, amount or timing.

Read more about working capital loans, or get in touch to talk through your situation.