What is a Business Loan?

business loan is a loan specifically intended for business purposes (Wikipedia). That is the simplest definition for a business loan. At some point in time, most businesses have to resort to such loans. Unlike regular private loans, the amount for business loans is not decided by the lender but mutually by the lender and the lender. There are numerous business loans available for local businesses today, ranging from traditional lenders to alternative financing solutions. A smart business loan, when maximized, can allow you to innovate new products and services in addition to assisting you to grow and scale your business while minimizing cash flow and liquidity issues.

 

After all, if there are any lessons to be drawn from the current pandemic, ‘adaptability and the willingness to ‘pivot’ are more important than ever to stay relevant and avoid being phased out of the race.

 

WHY TAKE BUSINESS LOANS?

The simplest reason one might want to take a business loan would be to meet running expenses or business expansion. Now, it is impossible to expand or run a business without capital. Lack of funds can also most definitely limit business growth. 99% of the small businesses always need a loan to expand their business and make sure the business runs smoothly. Capital is required for the purchasing of new equipment, hiring and training staff, expansion plans.

 

What is SME?

A small business loan, better known as SME, is financing received by a company by a lender. The lender may be a Non-banking financial corporation, a traditional bank, or even a  government institution. In return for offering you capital, the lenders charge interest or markup on that capital as profit. SME’s require the lender to pay back the capital to the lender in a fixed amount of time, and if the lender fails to do so, there are consequences. Repayment terms, fees, and interest rates vary largely depending on the type of corporate loan, the lender, and several other factors, such as your credit history, the nature of the business, existing debt of the business/ net worth etc.

 

SME finance is a type of loan specified for only small to medium scale enterprises or businesses. It works just like a regular personal loan. However, some policies are different in SME loans than personal or regular business loans.

Why would the government want to give out such loans?

Well, the answer to this is simple. The government wants to economy/country to prosper, and for this to happen, the country needs to produce more and produce better. For this to happen, the government needs to make sure that the businesses in the country are supported in any and every manner possible. The closing down of a business, the never opening up of a very good potential business and the expansion of businesses; all three of these are crucial for the economy.

Why would a bank or any other private institution want to give out such loans?

The answer to this is simple as well. The extra amount charged on the capital is pure profit for the lender. The cost of borrowing, which is interest, would be the incentive for such companies to hand out such loans.

How will you apply for a business loan?

When you apply for a business loan or a working capital loan, it’s important to know the criteria for getting approval for the loans. No bank is going to issue you a loan if you don’t meet these criteria:

  • At Least three years of cash withdrawals in that bank account.
  • Three months of a source of income and the statement of your cash spending in the last three months.
  • ARP (accounts receiving reports)
  • Proof of ownership

Moreover, there are a few things that could prevent you from getting your business loan. Below are these things::

 

  • Poor credit history (score)
  • Limited cash flow
  • Lack of a solid business plan
  • Too many loan applications
  • Disorganization

 

Credit History

In the same way, poor credit history and low transaction amounts will prevent you from receiving business loans. Moreover, before applying for a business loan, make sure that your documents are genuine, accurate and meet all the bank’s criteria. Lastly, you’ll need to tell your business plan to your bank. The more good your business will be, the better you’ll have chances of getting approved.

Benefits of obtaining business loans in Singapore:

Banks, unlike equity investors, do not interfere with the way you run your business. They do not set the terms and conditions for how you should use the money from your business loan. You are free to use them however you see fit. Banks are only concerned with timely repayment. This is why the bank is the best option for controlling how the funds are spent.

Convenient and simple: Getting a business loan is as simple as contacting the lender and discussing the possibility of securing funds instead of looking for an investor and holding the discussion for months and coming up empty-handed.

Reasonable interest rates: Banks in Singapore offer lower interest rates than online lenders and offer the best repayment plan so that the business can pay it off on time.

No collateral required: If you meet the criteria, banks in Singapore will usually make you a loan without requiring any collateral. This is an appealing option for small businesses that may not have many assets.

Tax advantages: The interest paid on a business loan is usually deductible. Before applying for a business loan, double-check the interest rate and eligibility.

Improved business credit: Obtaining a loan can help to improve the overall creditworthiness of a business.

Some other positive aspects of taking business loans in Singapore

Loans are becoming more accessible due to advances in digital technology. Many licensed moneylenders in Singapore have electronic application platforms that people and businesses seeking loans can use. You may also use online loan applications/platforms to apply for any loan. Compared to the hassles you’ll face when applying for a loan from a traditional bank, getting approved for a loan from an online lender is simple. A benefit of accepting a loan from a Singapore-certified moneylender is less paperwork because your application can be pre-approved online before you visit your moneylender’s office. In summary, the benefits of taking out a loan in Singapore include quick approval and lower interest rates.

Before Receiving a Business loan

Ask Yourself:

  1. What am I going to do with this extra loan?
  2. What is the amount of money I’m looking for?
  3. What is the status of my credit history?
  4. How soon do I require the funds?

Ask Your Lender:

  1. Do you provide loans to companies in my industry?
  2. What are the interest rates, and how much will it cost in total?
  3. What is my payment schedule going to be like?
  4. When do I have to make my first payment?
  5. How do I make the periodic payments?
  6. How long does it take to apply for a loan application?

These are the questions one must ask himself before deciding on taking a loan. It will help you get clarity on what exactly fits into your needs. And what is required for your business success?

Types of Business Loans in Singapore

Singapore’s government-assisted company credit schemes were created in 2020, at the height of the COVID-19 epidemic, as a tool for the government to assist Singapore’s businesses.

 

Unsecured Business Term Loan

Unsecured business term loans are backed by the personal guarantees of company directors rather than physical security such as property or equipment.

Because of their flexibility, these loans are popular among SMEs. They can be used to fund day-to-day operations like inventory purchases and salaries and business expansion plans like leasing a new retail location.

 

Merchant Cash Advance

Merchant Cash Advance (MCA) is a customized loan option available primarily to food and retail industries that use credit or debit card processors.

 

Invoice Financing

Invoice financing or bridging finance is a type of credit facility in Singapore that uses invoices as security.

 

First Business Loan

This is a type of loan for young start-ups for which have been registered and operating in Singapore for between seven months and up to three years. OCBC Bank offers it as one of the few business capitals available for new start-ups.

 

Debt Venture Financing

A type of interest-free loan offered to startup business loans is known as venture debt finance. Both DBS and OCBC provide this service. Banks are always unable to provide bank loans to unprofitable enterprises. Non-profitable start-ups, on the other hand, have been able to win multi-million (or billion) dollar venture investments in recent times. The venture loan financing programme was created to assist these enterprises in filling in the gaps in their capital.

 

Conclusion

From 2010-2021, 90% of business start-ups were funded by SME loans in Singapore. SME is intended to let the owners set up their business and help Singapore’s economy, open employment, etc. They are an integral part of the economy, and without the concept of SMEs, the country’s economy would not be able to rise at a good pace.

 

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