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Author: Ravi Philemon
If you are a business owner or possibly even looking to be one, it is important to understand that there are different loans out there that are meant to help you fund your company.
By: Hitesh Khan/
Besides banks, there are other financial institutions that are more than willing to offer different loans for small or medium business owners.
These different loans for businesses are very similar to personal loans because of the fact they must be repaid in full by a certain amount of time, whether this be some sort of a repayment plan or a large lump sum payment.
The money being borrowed can be used for a number different reasons. For example, you can use this money to purchase new equipment that is needed, purchasing additional inventory or materials, hiring employees, covering for operational expenses, or even to pay staff salaries.
But as with all loans, it is very important that the borrower takes this money very seriously and plans out first how the funds will be used. Many new company owners make the mistake of borrowing a lot more money than they need because they did not plan ahead of time.
This will make it very difficult to make the payments, especially when such different loans come with a high interest rate.
For example, think about how you are going to use the funds borrowed:
- Are you looking to start your business and get things going?
- Do you have a business but are now looking to expand?
- Do you just need a little help with this months payroll?
- Have you considered other financing to cover the funds you need?
These are just some of the questions you should ask yourself before taking on this type of different loans. Remember you do not want to forget about certain risks that come along with owning your own business.
Once you have decided you want to take on this loan you must come up with a business plan to present to the lender. You must come with a business plan and data sheets that are easy enough for the loan officer to understand your field of work.
The loan officer will need to be convinced that you will be able to take on this loan and pay it back with ease. If you can achieve this, then there should be no problem getting this type of loan to help your business. But be mindful that over half of entrepreneurs are expecting to increase their revenues by 50 per cent in 2019, yet many are facing an uphill battle when it comes to funding their business expansion.
An SME Development Survey by DP Info in November 2017 said a major sticking point for entrepreneurs in Singapore is cashflow management, It said that an increasing number of firms struggling with delays in client payments.
The survey found about 35 per cent of SMEs saying they had finance-related issues – 13 percentage points more than a year earlier and the highest since the survey began tracking the issue in 2011. And among these 35 per cent, the proportion experiencing delays in payments from customers skyrocketed from 14 per cent in 2016 to 81 per cent last year.
A separate Spring Singapore poll conducted in Dec 2017 showed that 64 per cent of SMEs said they were facing some form of delay in receiving payments from customers.
Mr Paul Ho, chief mortgage consultant at iCompareLoan said, “businesses need to borrow when they do not need money.”
He added: “When your business is struggling and you need additional funding to tide over a tough patch, then you will find that your access to funding is completely cut off and end up with very expensive funding.”
It may be wise to plan 6 to 12 months ahead for any potential funding needs. Even if you do not need funding now, you may want to quickly refinance your home loans for any potential equity and stand-by cash even if you do not need it now.
Remember, banks assess your credit and affordability at the point of application, so you should apply when your status is good, not when you have further deteriorated. At that time, no banks will lend you. You should also read about more about the different loan types. If your business is profitable and you only need short term funding, but your access to bank’s working capital is temporarily cut off, then you should consider personal loans as a source.
As you know, a loan is based on a simple idea: someone gives you money and you promise to pay it back, usually with interest. Loans are so common that you probably are familiar with the mechanics, but nevertheless it makes sense to review the basics. The success or failure of your business can hinge on the question of if you did borrow funds when you were in the black. You may want to borrow funds which are just enough that your company can reach its potential, but not so much that you have severe difficulty paying it back.
It can be a mistake to pour too much money into your business at the beginning. A fair number of small businesses fail in the first year, so raising and spending a pile of money for an untested business idea can lead to much grief – especially if you’re personally on the hook for borrowed funds. Consider starting as small and cheaply as possible.
You have many options when looking a loan for your business. For small ventures, responsible borrowing means considering if friends and family members are willing to help. For sophisticated or mid-sized businesses, banks, cooperatives, and savings and loans may be willing to lend you money.
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