4 Ways to Lose Money on Bonds

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Author: Marubozu

Authour: Anya


It would likely surprise a lot of investors to find out they could lose money investing in bonds. Their first instinct is usually to think back to all the financial advisers they have heard say bonds are safe investments. The truth is that while bonds are certainly more secure than a lot of other investment options, they are far from fail-safe.

In a effort to protect investors from any misconceptions they might have about investing in bonds, we are offering information on the following four ways investors can lose money on bond investments.

FYI: defines a bond as: “a fixed income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental). Bond details include the end date when the principal of the loan is due to be paid to the bond owner and usually includes the terms for variable or fixed interest payments made by the borrower.”


Losses From Bond Trading

Much like stock investing where concerns about the total stock return formula matter, investors can buy and sell bonds at will. When buying or selling a bond, the investor is subject to market forces. The pricing process is stated in terms of bid and ask pricing. In the process of buying and selling bonds, the investor is always subject to business activities that can cause a sudden change in a bond’s price. Here’s four ways that can happen:


Interest Rate Moves

From time to time, the US Federal Reserve will move interest rates. When interest rates head upwards, bond prices will move downwards. If an investor is trying to actively trade bonds as interest rates are heading higher, they stand the risk of getting caught paying too much for the bonds they purchase. When that happens, they are stuck with bonds that likely won’t recover in price until interest rates head back down, which could be months or years.


The Credit Rating Effect

The value of a bond reflects the underlying company’s creditworthiness in the eyes of investment rating companies like Moody’s or Fitch. If said rating companies see that a corporation is struggling, they will respond by lowering a corporation’s bond ratings. Investors holding those bonds could take a significant hit until the bond’s ratings go back up.


Corporate Business Decisions

Corporations are always subject to some kind of restructuring process. This could include mergers, selling of assets and bankruptcy filings. Any of these types of events among others could have an adverse effect on the prices of the corporation’s bonds. For the investor, the ultimate risk could be a complete loss in investment value.


Supply and Demand Issues

As mentioned before, markets forces will always affect a bond’s price. There is always the potential an investor will buy bonds at market prices only to encounter a situation where the bid/ask spread is unusually wide at the time they are trying to sell. If selling is mandatory for any reason, they might have to liquidate at the bid price, which could be significantly lower than the investor’s cost basis.


Inflationary Impact on Bonds


There are two ways investors can lose money when inflation starts rising. First, the Fed will usually react to inflation concerns by raising interest rates. As indicated in the section above, rising interest rates would likely have an adverse effect on bond prices.

The second way investors could be adversely affected by inflation is if the relevant inflation rate were to rise above an investor’s return on fixed income investments. In such a scenario, an investor might be earning 5% on their fixed income bond investments but could be losing purchasing power as inflation exceeds that same 5% mark. If an investor were to get hit by both of these inflationary scenarios at the same time, which is likely, they could take a significant hit.

While not as common, it’s worth noting that deflation, sudden changes in the Consumer Price Index and tax laws could also create losses for bond investors.


Investing in Bond Funds

Instead of investing in individual bond securities, investors could choose to invest in bond funds. If you are wondering what is bond fund then let me tell you it is a fund that “sells shares in the fund to investors and uses the money it raises to invest in a portfolio of bonds to meet its investment objective — typically to provide regular income.”

When an investor invests in a bond fund, they give up the ability to make buying and selling decisions other than to get in or out of the fund. The management of the fund’s portfolio falls on the shoulders of fund managers. In such cases, the investor is at the mercy of the fund manager’s investing skills.

There’s two primary scenarios that could drive a funds value down. First, a large redemption request from a large investor or group of investors could force the fund manager to “fire sell” positions to cover the redemption amount. Under the second scenario, plain and simple poor management could hurt the fund’s valuation.


Investing in Municipal Bonds


Some investors prefer to invest in municipal bonds (Munis) under the guise they trust government agencies more than they trust corporate managers. If someone invests in municipal bonds, there are two primary scenarios that can hurt a bond’s value.


First, tax decreases can hurt the demand for munis. When tax rates decrease, astute investors often become more willing to invest in investments that offer a higher return. They will do that because the taxes they would have to pay on such investments would be lower. If investors are selling to move investment dollars, municipal bond prices would likely drop.


Second, government agencies are always subject to changes in regulations, think zoning changes. If regulation changes would adversely affect a municipal bond’s underlying project, a credit rating adjustment might be prompted. That would certainly cause a bond’s price to drop.


None of this information is intended to dissuade investors from investing in bonds. More specifically, the information we have provided here is intended to make sure investors have a full understanding of the risks involved with bond investing.


Finance business by choosing from a vast array of alternatives

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Author: Ravi Philemon

If you are preparing for expansion you should finance business through a SME loan – but what alternatives are out there?

By: Hitesh Khan/

Finance business by choosing from a vast array of alternatives. Debt or equity? Secured or unsecured? Are you at start-up, already launched, profitable, looking for exit / succession funding? How much resources have you committed to financing business?

To get finance business, what does a lender or investor want from someone? What are some of the myths?

Probably the most common mistake we find among those seeking financing for their business is the idea that someone else will stake them to their dreams without them taking a large share of the risk.

Think about it – how much confidence will a lender or investor have in your proposal if you don’t have enough confidence in it yourself to put your own resources at risk?

So, the most basic rule to secure business finance is to commit yourself and your savings or resources to the business.

For a start-up business, which might not be able to obtain funds on credit, the owner will have to come up with capital, such as from personal savings. No matter where else you look for funding, the money you put in is a strong sign of good faith and commitment to other lenders. Consider borrowing from friends and relatives and /or selling off surplus assets to provide the funds you need.

For an established family business, financing is often needed for expansion or to assist with transition of ownership from one generation to the next. As part of our succession management program, you should always consider the economics to “build or buy” as part of their growth strategy. Given the current economy, there are many businesses to buy – but certainly not without expert advice”.

Your business plan should tell you. Things like:

    • initial operating expenses such as utilities, rent, payroll
    • inventory and supplies to get started
    • computer system, software
    • fixing up your premises, office furniture, production equipment, delivery vehicle
    • perhaps funds to buy an existing business rather than starting from “scratch”, etc.

To secure business finance, not all of these items require cash. Alternatives include renting or leasing and even barter or exchange.

And don’t forget the important questions in financing business that go with “how much?”

    1. When do you need it? Utilities are paid after the end of the month, except for a small deposit at the beginning. Payroll is incurred weekly or monthly. Rent is usually paid along with a deposit at the beginning of the month. Inventory can be built up gradually in some cases, and suppliers often grant extended payment terms.
    2. When are you going to pay it back? You will want to earn enough to start paying operating expenses from regular cash inflow. Inventory should turn over [be sold and replaced] several times a year so that you can typically sell it and collect for the sale in around 90 days. Assets like production equipment, delivery vehicles, computer system last longer and might take around 5 years to be paid off completely.
    3. What security do you have to offer?Also known as collateral, security is what a lender has to rely on if you don’t repay. It might be business assets and / or personal assets.

Follow these tips to ensure lenders look to finance business favourably:

1. Review your credit history for business financing

Lenders will thoroughly examine both your personal and business credit history before making a credit decision. Before you approach a potential lender, request a copy of your personal credit report. If you find errors in your credit report, contact the credit bureau.

2. Gather financial documents for business finance

You will likely need tax returns and financial statements for your business if you are applying for a term loan or line of credit. For a Small Business Administration loan, you may also need to present a formal business plan.

finance business

Image credit: YouTube

3. Determine how much capital your business needs before applying for business financing

Before you walk into the lending office or fill out a credit application form, figure out exactly how much money your business needs to borrow, and make sure it’s a realistic amount. If you’re not sure how much capital to ask for, consider consulting a financial professional. He or she will closely examine your cash flow and current debt load to determine how much financing you actually need. Also, be prepared to tell the lender how you plan to use the money.

For example, you may explain that you will use the capital to pay for additional office space, furniture or equipment.

4. Understand all your lending options to finance business

It’s important to identify all the lending options available to you and determine which one is the best choice for your business. You will also want to consider the process and the timing. For example, loan decisions below $100,000 may be based on your credit profile and basic information, while larger amounts may require a detailed review of your finances.

5. Consider payment terms for business financing

You also have to decide how long you will need to repay your credit. There are short-, medium-, and long-term loans, and they all have positives and negatives. For example, if you expect to be able to pay back the money quickly, a short-term loan may be the best choice.

While preparing to apply for credit, you’ll need to gather key information and required business documents to support your application. The requirements will vary greatly depending on the type and amount of credit, from basic information for a credit card to full financials for a major term loan.

For more complex loans, you may need to provide additional information. For example, in the case of a commercial real estate loan you will need to provide some property related documentation.

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Risk Parity: For Those Who Know They Need to Invest Yet Protect Their Capital Well

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2020 only just started. But for many stock investors, it may seem like an eternity. … Read more >>

Tax payment digitalisation sees 20 per cent reduction in cheque volumes

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Author: Ravi Philemon

Move towards tax payment digitalisation sees DBS and IRAS working towards Singapore’s target to be cheque-free by 2025

By: Phoenix Lee/

In line with Singapore’s Smart Nation agenda, DBS Bank announced in October 2019, that it is collaborating with the Inland Revenue Authority of Singapore (IRAS) towards tax payment digitalisation and collections via PayNow to encourage more businesses to go cheque-free.

IRAS first introduced PayNow as an option for businesses to receive Wage Credit Scheme(WCS) payouts in March, resulting in a 20 per cent reduction in cheque volumes to-date. Before the implementation of PayNow, about half of WCS-eligible businesses, many of which are small and medium-sized enterprises (SMEs), chose to receive their payouts via cheques.

tax payment digitalisation

Next phase in tax payment digitalisation will see stamp duty services being digitalised 

Under the WCS introduced in Budget 2013 and extended in Budget 2015, the Government co-funded 40% of wage increases from 2013-2015 and 20% of wage increases from 2016-2017 given to Singapore Citizen employees who earned a gross monthly wage of up to $4,000. Only employers are eligible for the co-funding. In Budget 2018, it was announced that the WCS would be extended for three more years (2018, 2019 and 202) to support businesses embarking on transformation efforts and encourage sharing of productivity gains with workers. Government co-funding was maintained at 20% in 2018. Subsequently, the co-funding ratio stepped down to 15% in 2019 and 10% in 2020. All other qualifying conditions will be unchanged.

Ms Ang Sor Tjing, Director of IRAS’ Revenue and Payment Management Branch said, “Implementing PayNow for the disbursement of the scheme’s payouts helps encourage businesses, many of which comprise SMEs, to go chequeless and transition towards digital payments. As part of IRAS’ digitalisation drive, we are also working with DBS to expand the use of PayNow to more services for the convenience of businesses and individuals.”

Mr Raof Latiff, Group Head of Digital, Institutional Banking Group, DBS Bank said, “Acceptance of digital transactions among individuals in Singapore has been well established. To bring Singapore’s digital agenda to fruition, it is critical to encourage SMEs to get on board the digital payments train as they represent 99 per cent of businesses locally. Partnering with statutory boards like IRAS is one of the key ways to encourage this shift, with them leading the way by digitalising payments and collections channels across their suite of services.”

For the next phase in tax payment digitalisation, both parties are working together to leverage DBS’ APIs (application programming interface) to digitalise IRAS’ stamp duty services.

Currently, most taxpayers tend to pay for conveyancing stamp duty via cheques and have to wait several days for the cheque to be cleared before a stamp duty certificate is issued. (Conveyancing stamp duty refers to taxes relating to the purchase of a property.) However, with DBS’ Direct Debit Authorisation (DDA) API, taxpayers can set up a GIRO account online, and make payment for their stamp duty and receive a stamp certificate through IRAS’ e-Stamping Portal instantly.

In addition, with a transfer limit of SGD200,000 per transaction, the DBS DDA solution also enables IRAS to digitalise payments for the majority of conveyancing stamp duty transactions. This new DDA e-payment option for conveyancing stamp duty will be launched in November, and more details can be found on the IRAS website closer to the launch date.

“Besides stamp duty payments, with cashless payments gaining momentum in Singapore, taxpayers are encouraged to use cashless or electronic payment modes such as GIRO and online banking to fulfil their other tax obligations,” said Ms Ang.

DBS continues to see traction from SMEs in the adoption of PayNow

DBS currently banks more than one in two SMEs in Singapore and continues to see healthy interest from the segment to digitalise their businesses.

Since PayNow was launched to corporates in August last year, DBS has seen a steady increase in SMEs adopting the digital payment collections solution, with the bank holding close to 40 per cent of the market share by registrations to date. From a transactions perspective, DBS’ corporate clients contribute to more than half of PayNow Corporate receipts in Singapore, with volumes from the bank’s SME customers growing threefold to date.

This was mainly driven by healthy take-up of the bank’s PayNow-integrated QR payment solution, DBS MAX, which led to a doubling in digital payment and collection transactions by SMEs since the solution was launched in November 2018.

“Singapore has continued to show steady progress in the adoption of digital payments on the back of the government’s continuous push to become a Smart Nation. However, in order to fulfil Singapore’s ambition to go chequeless by 2025, we need to continue to innovate and explore new ways to help ease businesses, especially SMEs, into the digital future, while providing them the support they need to face the challenges ahead,” said Mr Latiff.

To this end, DBS has invested more than 100 hours this year in customer workshops to educate business owners on the benefits of digital payment solutions such as DBS MAX, and targets to ramp up the adoption of DBS MAX among its SME clients by five times by end 2020.

Mr Paul Ho, chief mortgage officer at iCompareLoan, said, “the move towards tax payment digitalisation is a good one. The property and loans industries are being massively disrupted by technology and Singapore has to keep up or we will lose our relevance in a rapidly changing world.”

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Stamp duty – five countries’ residents treatment is same as Singaporeans

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Author: Ravi Philemon

Did you know that nationals or Permanent Residents of five countries are accorded the same Stamp Duty treatment as Singapore Citizens? The nationals from these five countries, just like Singapore citizens, are exempt from the current rate of the Additional Buyer’s Stamp Duty (ABSD) levied on foreigners when they purchase residential properties. The ABSD for foreigner in Singapore is 20%.

stamp dutyFor Singapore Citizens, as far as stamp duty treatment is concerned, there is no ABSD on their first residential property.

For the second residential property, the ABSD rate is 12% and 15% for their third and any subsequent residential properties. Singapore Permanent Residents (SPRs) will be charged 5% ABSD on their first property and 15% for their second and subsequent residential properties.

As a result of Free Trade Agreements signed by the Singapore Government, nationals and permanent residents of these five countries are accorded the same Stamp Duty treatment as Singapore Citizens. The Free Trade Agreements signed with the United States of America and the European Free Trade Association (EFTA), provides these exemptions to the residents of these countries.

Those who are able to enjoy this remission of ABSD are:

  1. Nationals of the United States of America; and
  2. Nationals and Permanent Residents of Iceland, Liechtenstein, Norway or Switzerland

This means that if you are a citizen of Iceland, Liechtenstein, Norway, Switzerland or United States of America, instead of paying an additional 20% for the ABSD, you do not need to pay any ABSD at all on your first residential property purchase in Singapore. And instead of 20%, the ABSD would be 12% for your second residential property and 15% for your third and subsequent properties.

This applies to only private non-landed residential properties, as foreigners are not allowed to purchase and own land in Singapore with the only exception being the luxurious water-front bungalows on Sentosa Cove.

Foreign investors who are eligible can submit an application of remission through their legal representative who can manage their stamp duty treatment and transactions with the Inland Revenue Authority of Singapore (IRAS) on your behalf.

The Government announced new property cooling measures in July last year. The measures saw adjustments to stamp duty treatment where the Additional Buyer’s Stamp Duty (ABSD) rates and Loan-to-Value (LTV) limits on residential property purchases, to cool the property market and keep price increases in line with economic fundamentals.

After declining gradually for close to 4 years, private residential prices began rising in 3Q2017. Prices have increased sharply by 9.1% over the past year. Demand for private residential property has also seen a strong recovery, as transaction volumes continue to rise.

The Government said the new stamp duty treatment was necessary to check sharp increase in prices, which could run ahead of economic fundamentals and raise the risk of a destabilising correction later, especially with rising interest rates and the strong pipeline of housing supply. The new property cooling measures introduced by the Government includes raising the ABSD rates and tighten LTV limits for residential property purchases.

The Government made the following changes to ABSD rates:

a.    Raise ABSD by 5%-points for all other individuals; and

b.    Raise ABSD by 10%-points for entities; and

c.     Introduce an additional ABSD of 5% that is non-remittable under the Remission Rules (payable on the purchase price or market value, as applicable) for developers purchasing residential properties for housing development.

LTV limits were also tightened by 5%-points for all housing loans granted by financial institutions. These revised LTV limits do not apply to loans granted by HDB. The LTV Limit will be 25 years, where the property purchased is a HDB flat.

The tightened LTV limits applies to loans for the purchase of residential properties where the OTP is granted on or after 6 July 2018. In line with the tightening of LTV limits for housing loans, LTV limits for mortgage equity withdrawal loans (MWLs) was tightened as follows:

a.    75% for a borrower with no outstanding housing loan for the purchase of another residential property; and

b.    45% for a borrower with an outstanding housing loan for the purchase of another residential property.

The Government said that it will continue to monitor the property market and adjust its policies as necessary, to maintain a stable and sustainable property market.It added that it was very concerned that prices are running ahead of economic fundamentals. The government noted that it has to avoid a sharp correction later as there is also a large supply of units coming on stream and interest rates are going up.

In July 2018, the Government new property cooling measures. The measures saw adjustments to the Additional Buyer’s Stamp Duty (ABSD) rates and Loan-to-Value (LTV) limits on residential property purchases, to cool the property market and keep price increases in line with economic fundamentals.

After declining gradually for close to 4 years, private residential prices began rising in 3Q2017. Prices have increased sharply by 9.1% over the past year. Demand for private residential property has also seen a strong recovery, as transaction volumes continue to rise.

The Government said the new property cooling measures were necessary to check sharp increase in prices, which could run ahead of economic fundamentals and raise the risk of a destabilising correction later, especially with rising interest rates and the strong pipeline of housing supply. The new property cooling measures introduced by the Government includes raising the ABSD rates and tighten LTV limits for residential property purchases.

Market watchers suggested that the 2018 property cooling measures were introduced after the aggressive bidding for land by developers resulted in the Government worrying that this could result in a supply imbalance and weight on the market.

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Important property tax information for HDB flat owners

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Author: Ravi Philemon

Important property tax information is useful since there is an obligation to pay tax – calculating the tax payable, tax rates applicable, payment of property tax, and tax implications – when you sublet or sell your flat.

Important property tax information for HDB Owners’ Obligation to Pay Tax

Property tax is a tax on ownership of property, irrespective of whether the property is occupied or vacant. It is different from Income Tax, which applies to the rental income earned from renting out the property. To encourage home ownership, owner-occupied HDB flats are taxed at substantially lower owner-occupier tax rates.

HDB Flat Owners Information Checklist

According to the important property tax information, IRAS will bill the owners in the months of Nov and Dec for property tax in the ensuing year. HDB flat owners have to ensure that the yearly property tax is paid by 31 Jan.

If you buy a new flat direct from HDB, within a year of taking possession of your flat, the Inland Revenue Authority of Singapore (IRAS) will send you a Valuation Notice notifying you of the proposed Annual Value (AV) of your flat, and your first Property Tax Bill showing you the amount of property tax payable from the date of possession. You are to pay your tax within 30 days of the Bill.

Important property tax information

The AV of buildings is the estimated gross annual rent of the property if it were to be rented out, excluding furniture, furnishings and maintenance fees. It is determined based on estimated market rentals of similar or comparable properties and not on the actual rental income received.

If you buy a new Design, Build & Sell Scheme (DBSS) flat from the Developer, within a year of the Temporary Occupation Permit (TOP) date, IRAS will send you a Valuation Notice to notify you of the proposed Annual Value (AV) of your flat, and your first Property Tax Bill showing the amount of property tax payable from the date of issuance of TOP. You are to pay your tax within 30 days of the Bill.

The apportionment of property tax liabilities during property transfer is a private arrangement between the developer/vendor and the purchaser. You may wish to approach the developer based on the terms of your contract.

Important property tax information for Amount of Property Tax Payable

The property tax is calculated by multiplying the Annual Value (AV) of the property with the prevailing property tax rate. If you live in your flat, your flat will be taxed at the substantially lower owner-occupier tax rates .

For owner-occupied HDB flats, you need not pay tax on the first $8,000 of the AV from 2014. The remaining AV will be taxed at the lowest tier of 4%. Non-owner-occupied HDB flats are taxed at 10% of their AVs as their AVs do not exceed $30,000.

Example: 4-Room HDB flat with AV of $10,140 (1 Jan – 31 Dec 2018)

Owner-Occupied Non-Owner Occupied
AV and Tax Rates Tax Payable AV and Tax Rates Tax Payable
First $8,000
$0 First $10,140@10% $1,014.00
Next $2,140
Tax Payable $85.60 Tax Payable $1,014.00

As for the Annual Value of the flat, IRAS assesses HDB flats by analysing the recent rental rates of the various room types. The data for rental rates is available from the e-stamping records. Generally, bigger room types command higher rental rates than the smaller room types within the same location. HDB flats in central locations also command higher rental rates compared to flats located in outlying locations. The AVs would have reflected the differences in the property location as well as the room types.

Important property tax information for Temporary Extension of Stay

HDB has a policy to allow sellers to extend their stay for a default period of 3 months after the sale of the flat to the new owner. If you have agreed to this arrangement with the seller, you would have been informed by HDB that you must pay property tax at Residential Tax Rate (10% of your AV) for the 3 months. Owner-occupier tax rates will not be applied on your flat for the extension period because you are not staying in the flat. This is stated in the HDB Terms and Condition and the Letter of Acceptance and Indemnity when you applied for the temporary extension of stay.

After the 3 months extension of stay is over, owner-occupier rates will automatically apply. Owners need not write in to IRAS to request owner-occupier rates.

You will be responsible for the payment of property tax as the new owner of the flat from the date of transfer. Property Tax will be based on 10% of the Annual Value of the flat during the 3 months extension stay period and at owner-occupier tax rates thereafter. You need not apply for the owner-occupier tax rates.

For all applications for extension of stay, HDB will give the maximum period of 3 months from the date of completion of the resale. Should the seller terminate their extension of stay early, you are required to update HDB by logging in to MyHDBPage with your Singpass within 7 days of the termination. Once you have updated or notified the HDB branch, HDB will transmit the information to IRAS. No further action is required from you and IRAS will notify you of the tax adjustments in the following month.

Mr Paul Ho, chief mortgage officer at iCompareLoan, said “owner-occupied HDB flats are taxed at substantially lower owner-occupier tax rates. The Government does this to encourage home ownership.”

Property Tax is different from Income Tax. Property tax is a levy on ownership of property, irrespective of whether the property is occupied or vacant

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Startup capital can be raised by exploring multiple options

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Author: Ravi Philemon

There are several ways to raise startup capital for your business. You may have sufficient savings to cover the startup costs, you can borrow funds from the bank or family or you can look for an investor. Keeping startup costs to a minimum is nearly always the best option and the lean startup is the most popular way to start a business in the current environment.

By: Hitesh Khan/

Every business needs to raise startup capital to get started, and there is a range of options out there for you to take advantage of. What’s available will depend on how much you need, the type of business you’re planning to run, and the level of control you want to keep, but essentially funding comes as four types:

  • Your own investment
  • Investment from others
  • Bank Finance

startup capitalMany companies mix and match their funding sources when they want to raise startup capital – an overdraft to cover day-to-day borrowing, a loan to buy equipment, and investment to provide a substantial amount to get the company up and running.

Personal investment
Most start-ups involve some personal investment, especially as it can be difficult to attract further funding unless you’re prepared to put your own money into the business. You might want to use savings, or even money from re-mortgaging your home. While borrowing on credit cards and unsecured personal loans are also options to raise startup capital, these tend to be more expensive and are not recommended as a solid foundation for a new start-up.

“Putting up your own cash gives you independence”

The advantage of putting up your own cash is the independence it gives you – lenders or investors may expect a say in how you run your business; they’ll certainly want a good return for their investment, and they can decide to withdraw their support at any time.

The downside is that if the business doesn’t work out, you could be left with nothing. If you’ve re-mortgaged, you may face large monthly repayments or be at risk of losing your home. You may end up paying interest on other loans for many years, while repayments on credit cards, if you use this option, can be very expensive.

Funding from family and friends
Asking those closest to you for help to raise startup capital is often an option in the early days, especially if your startup is too small to tempt investors or banks.

Gratifyingly, family and friends are often less demanding than banks and investors, offering interest-free or low-interest loans. They could be willing to accept your back-of-an-envelope idea in lieu of a formal business plan. They may also trust you to get on with the business without their input. However, it’s important that you explain the risks to them, as well as your goals for the business. Ask them to contribute only as much as they can comfortably afford.

It’s best to put any agreement in writing to avoid potential fallouts later. You’ll need to be clear whether they are offering you a loan that will be paid back or an investment in return for a share of the business. You could draw up an agreement, which should cover issues such as interest and repayment terms, possible shareholder voting rights, and what happens should your investor want to exit the deal. A few principles agreed on a sheet of paper could save considerable heartache in the future.

Overdrafts and loans

Banks are often the first port of call for additional finance when you want to raise startup capital.

You can borrow money in a variety of means including overdrafts, loans, asset and invoice financing, but first you’ll need to show the bank that you’re a good risk. A comprehensive business plan is essential and on many occasions security (business or personal assets) is asked for.

It’s desirable to show you have a good track record in business and that you’re investing some of your own money (or that of an investor) in your idea. Bear in mind that you may have to pay an arrangement fee in addition to interest on the amount you borrow.

“You can raise additional finance in a variety of means from banks”

Loans can be a flexible way to finance some of your startup costs. You might borrow $1000 or $100,000 and pay it back over five years or twenty. You can budget for your repayments and may be able to take a repayment holiday, during which you pay only the interest on the amount you owe. It is sensible to look around for a deal and interest payments that suit you. However, you may find that regular loan repayments cause you cash-flow problems, or that you are paying interest on money you’re not using.

Overdrafts can provide a fallback that helps to fund everyday expenses. They often have higher interest rates than loans, but the advantage is that you pay only on the money you have overdrawn. Banks can ask for repayment of the overdraft at any time, so look for a commitment or guarantee, where possible, for the term of your overdraft. This gives you the confidence that it’ll be there as and when you need it for the period you’ve agreed.

Business angels and venture capitalists
If you’re looking for funding of more than $10,000 for your business, an ”angel” may be the answer to your requirements to raise startup capital. Business angels are wealthy individuals that invest capital in start-ups in return for shares in the business. In addition to cash, they can offer their valuable expertise.

“Business angels and venture capitalists may be the answer to your funding requirements”

Venture capitalists invest substantial sums in high-risk businesses or those that have the potential to generate substantial amounts of money in the longer term. They tend to expect a big say in how the business is run, and set targets that must be met before each stage of funding is released.

Either of these options will mean relinquishing a certain amount of control – and profits – in your company, but a venture capitalist may be an attractive option if you don’t expect to produce much cash at first. Unlike banks, which typically expect immediate payments on a loan or overdraft unless payment holidays are agreed upfront, outside investors don’t usually expect to see money back until the business can afford to pay it. It is important to make sure that you understand the terms of repayment upfront so that you can be confident and clear about what you’re aiming for.

A new and fast growing way to raise startup capital is through various crowdfunding. Crowdfunding platforms allow a wide array of individuals to fund all sorts of projects and businesses around the world. The typical amounts funded could be as little as a few dollars and as high as tens of thousands of dollars. Each crowdfunding site has different policies and different criteria of how you give the money back.

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Qualifying Certificate regime change a win-win for all stakeholders

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Author: Ravi Philemon

Qualifying Certificate regime creates a win-win-win situation for the real estate developers, the capital markets, and policy makers

qualifying certificate regimeOn 6th February 2020, the Ministry of Law and Singapore Land Authority announced that the exemption of publicly listed housing developers with a substantial connection to Singapore from the Qualifying Certificate (QC) regime will be allowed.


Under the Residential Property Act (RPA), any housing developer that is not considered a Singapore company has to apply for a QC when it purchases residential land for development, other than from the government. Under the QC regime, it is required to complete the development within five years and dispose of all units within two years of completion. The extension charge payable for an extension of time is: 8% of the purchase price of the land for the first year extension, 16% for the second year of extension and 24% for the third and subsequent years. The number of unsold units will be taken into consideration when computing the charge. This is to ensure that such housing developers build and sell the residential units in a timely manner, and do not hoard and speculate in residential land.

A housing developer that is a Singapore company is not subject to the QC regime. Currently, a Singapore company is defined in the RPA as one that is incorporated in Singapore, and all its directors and shareholders are Singapore citizens or Singapore companies. This definition however means that publicly listed housing developers that are essentially Singaporean will not be considered a Singapore company. If they have one foreign shareholder, they will not be considered a Singapore company.

Publicly listed housing developers can apply for Qualifying Certificate regime exemption on the basis that they have a substantial connection to Singapore.

The Qualifying Certificate regime exemption application will be assessed by reference to the following criteria:

1. Incorporation in Singapore;
2. Primary listing is on the Singapore Exchange and principal place of business is Singapore;
3. The chairperson and the majority of the company’s board are Singapore citizens;
4. A significantly Singaporean substantial shareholding interest in the company; and
5. Track record in Singapore.

The QC exemption changes will be implemented with immediate effect and reflected in legislation later this year.

The government is making no changes to the existing property market cooling measures, which were put in place to keep private residential property price increases in line with economic fundamentals. In particular, all housing developers continue to be subject to the prevailing Additional Buyer’s Stamp Duty (ABSD) regime. The regime requires, among other conditions, developers to sell all units in a residential project within a specified timeline, failing which they will be subject to the ABSD.

The Qualifying Certificate regime creates a win-win-win situation for the real estate developers, the capital markets, and policy makers, said Colliers International.

The QC rules, along with the additional buyer’s stamp duty (ABSD) – which was hiked to 30% (of which 25% is remittable) in July 2018 – have been seen by developers as a “double whammy”, both carrying hefty penalties if they do not sell all units in a project within the stipulated timeframe. This exemption will certainly be greeted with much relief, particularly for developers who are concerned about clearing their inventory and potentially having to pay for QC extension.

With the QC exemption, we think land bid prices for larger sites may potentially improve as developers may not need to provision for both ABSD and QC penalties for failure to sell all units within five (ABSD)/seven (QC) years. This could further help to promote efficiency in the marketplace as developers have a clearer picture of their risk exposure.

We believe the QC exemption for eligible developers could have a positive spin-off effect in that it may help to deepen the capital markets: 1) by attracting new listings of developers on SGX; or 2) encouraging re-listings of developers who have de-listed over the years due to the QC rules.

For the policy makers, the various eligibility criteria (as outlined below) set out will continue to position as a competitive global business hub and promote the hiring of Singaporeans into leadership and directorship roles.

This Qualifying Certificate regime exemption is a welcomed news amid an uncertain business environment. Although the ABSD remains unchanged currently, we feel that this could be a lever that the government can pull should there be a deep economic downturn. For instance, there could be flexible adjustments to the ABSD by reducing the tax, or extending the timeframe beyond five years. Such fine tuning of the ABSD, particularly in difficult times, could help to ensure the property market remains viable as well as facilitate the rejuvenation of large ageing properties.

CBRE commenting on the Qualifying Certificate regime said:

“This exemption will effectively remove the double whammy effect to some developers that have to contend with both the QC as well as the ABSD regimes. Successful applicants of the exemption of the QC regime will still have to ensure that all units in their residential projects are sold within a specified timeline under the overarching ABSD regime. Going forward, as such listed companies may not be categorised as a foreign entity following a successful application, some of these listed developers will be given a respite to continue to participate in the acquisition of land in the near to mid term.

“This is a clear indicator that the government is constantly monitoring and fine tuning its policies. This policy further strengthens their support for local developers, as it is difficult to qualify listed developers as a 100% Singapore company.”

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