Running a business comes with both challenges and advantages, especially when the business is an SME (a small or medium enterprise) in Singapore.
It is common for SMEs to run into cash flow problems, which may lead to other negative consequences for the business if they are not resolved quickly. For example, the growth of your business may be restricted as you may not have the capital to take on new opportunities or boost your business.
One way to resolve cash flow issues in an SME is to take up a small business loan. A small business loan is a type of money loan and business financing that is specifically created for small businesses. It is meant to help SMEs tide over rough patches and speed up their growth.
What are the key factors a business owner will need to consider before taking out a business loan? Read on to find out.
Before taking a business loan, you should first decide what your company needs it for so that you will be able to make a better choice when selecting the loan that is needed, allowing you to choose a loan that will best suit the needs of your business.
You should also conduct an assessment of your company’s finances to determine whether your company needs the loan. This is because after taking on the loan, your business will have more financial liabilities, which means that your business will need to be able to pay off the debt.
Next, you should consider your company’s eligibility for the loan.
For example, loans offered by banks in Singapore require your business to be incorporated in Singapore for a number of years and have at least 30% local shareholding. Banks would also require directors and/or major shareholders to have a good credit history. With so many different requirements, it may be difficult for some business owners to meet them.
For business owners that do not meet banks’ business loan eligibility criteria, licensed money lenders in Singapore can be a great alternative as they are less stringent compared to banks. For instance, they can extend business owners with bad credit scores. Licensed money lenders also tend to process the loan application much faster compared to banks.
The maximum loan amount offered by banks and licensed money lenders varies, and this can depend on various factors as well, such as the company revenue, minimum operational period, and so on.
Hence, you will need to know how much credit your company needs when taking out the loan, and work out the numbers to find out if your company qualifies to take out that loan amount.
When taking out a business loan, two of the most important aspects to consider are the interest rates and loan tenure offered by the bank or money lender.
Banks may offer interest rates of 3.5% to 12% p.a., with loan tenure of 1 to 5 years. On the other hand, licensed money lenders typically offer interest rates of 4% to 8% per month, with loan tenure of up to 24 months for small business loans.
Hence, before applying, you need to consider if the loan terms are suitable for your needs.
We don’t do credit discrimination, so you will still be eligible for a loan even if you don’t have the best credit history.