Feeling lost in the maze of business financing? This Guide to the Business Loans will help you make the right decisions.
Hey boss, how are you doing? Is your business holding up okay in face of challenges brought about by the slowing economy during the current pandemic? Times are bad and this is the time when everyone helps one another so that we can all survive and fight another day.
I am here to help you too. If you are an owner of an SME in Singapore, cash flow is likely to be a major issue for you now. Many bosses like you are looking at securing business loans to pay their staff, pay their rent, buy new equipment and pay for inventory, etc. Some lucky ones may even be exploiting lower interest rates during this current economic climate to expand their businesses.
Whatever reason you have for taking a business loan, you need to know which are the different types of business financing and identify which is the deal most suited for you. And, trust me, there are a lot of different types of financing, each dependent on your purpose with varying requirements, interest rates, fees, and application processes. No wonder many business owners end up feeling super blur! And it’s no good being blur when a wrong choice can have a bad impact on your business.
But, luckily for you, you have me. Let me break it down for you so you know exactly which is the best loan deal that caters to your business needs.
You’re welcome, boss.
WHAT ARE YOUR BEST BUSINESS LOANS OPTIONS?
Just like you will read a menu at a restaurant before deciding which dish to order, smart bosses like you must know what the different loan packages are available. Here are your options. You can check the table below for clearer comparisons as well:
BUSINESS LOAN / WORKING CAPITAL LOAN
A business loan or working capital loan is a loan that finances a company’s day-to-day operations. These loans are not for purchasing long-term assets or investments. Instead, they provide cash that covers a company’s short-term operational needs such as rental, employee salaries, or acquiring inventory. They include:
Business Installment Loan
- As the name suggests, this product allows eligible companies to secure a term loan that will be repaid in fixed installments over a fixed period of time.
Secured or Unsecured Loans:
- A secured loan is one that is tied to something valuable – like a car or a piece of real estate. The most common types of a secured loan are car loans and mortgages. Failure to pay the loan will result in your property being taken by the lender. An unsecured loan, on the other hand, is not tied to any collateral.
Overdraft/Line of Credit
- A business overdraft allows withdrawals of cash till it reaches a stipulated amount even when the bank balance has dropped below zero. A line of credit is similar but is usually tied to collateral and has a higher limit than an overdraft and a lower interest rate.
- This is a common method for buying expensive goods, where the buyer makes a down payment and pays the balance plus interest in installments.
Trade loans are flexible, short-term financing facilities that are linked to a business’ imports or exports. They include:
Trade facilities loan
- Trade facilities loan delivers payment to an exporter on behalf of the importer before goods have arrived. The lender will loan money to the importer so the exporter can be paid once goods have been shipped. Collateral for these loans is usually the goods in transit.
Letter of credit
- A letter of credit is a bank document guaranteeing that a buyer’s payment to a seller will be well received. If the buyer is unable to make a payment on the purchase, the bank will have to cover the full or remaining amount of the purchase.
- A trust receipt is a bank document for a business that has received delivery of goods but cannot pay for the purchase yet until after the goods are sold. In most cases, the company’s cash flow and working capital may be tied up in other projects and business operations.
Factoring is a financial transaction in which a business sells its accounts receivable to a third party at a discount. A business will sometimes factor its receivable assets to meet its present and immediate cash needs. They include:
- Invoice financing allows businesses to borrow money against the amounts due from customers. This helps businesses improve cash flow and reinvest in operations and growth earlier than they could if they had to wait until their customers paid their balances in full.
Sales Orders / Accounts Receivable
- This form of financing allows companies to receive early payment on their outstanding invoices. A company using accounts receivable financing commits some, or all, of its outstanding invoices to a lender for early payment, in return for a fee.
Your property or real estate is an asset that can be monetized. Many business owners raise cash to finance the purchase of a property. Property loans are most commonly referred to as mortgages. It includes:
Commercial property loan
- A commercial real estate loan is a mortgage secured by a lien on commercial property. Commercial real estate refers to any income-producing real estate that is used for business purposes; for example, offices, retail, hotels, and apartments.
*Click on table to download Guide to Business Loans Comparison
ARE YOU ELIGIBLE?
Now that you have seen all the loan options available to you, the next obvious question is: Which one are you eligible to take?
To answer that, it is important bosses understand the minimum requirements for each loan option. Is your credit standing strong? Is your future business plan sustainable? Different banks and financial institutions have different credit and lending criteria that most business owners are not even aware of, so how do you know for sure?
Instead of hitting in the dark, get expert loan brokers such as Beacon Financial Services to advise you on this and save you the trouble from applying from the wrong sources. A good loan broker will identify what are the possible pitfalls of your loan application, and how you can improve your credit standing.
Your trusted loan broker will even go down to the nitty-gritty details and pinpoint the areas of your business operations that could potentially jeopardize your future loan approval, which in turn increases your chances of getting your loan approved in the future. Cool right?
IS THERE A PRICE TO PAY?
There is no free lunch in the world, boss. For financial institutions and lenders to trust you with a pot of money, you must be ready to give something back in return in time to come.
Indeed, before you get a loan, there are terms and conditions to consider. Things such as business loan fees, early loan redemption, and penalties for late payments are just some of the common terms and conditions that will influence your choice.
Sounds confusing? Don’t worry! At Beacon Financial, their loan brokers will be able to explain the terms and conditions clearly to you so you can make an informed decision that is in the best interests of your business. It’ll be as clear as night and day!
BEFORE YOU TAKE A LOAN, ASK YOURSELF…
One of the biggest mistakes a boss can make is to sign up for a wrong loan product for the wrong reasons, on the wrong terms. It’s a triple whammy that is akin to committing financial suicide.
That is why smart bosses will ask themselves these few questions before they sign on the dotted line:
- What are my business needs and what am I borrowing for?
- How desperately do I actually need the cash and how urgently do I actually need it?
- What is my personal credit score and how can that impact my application for extra funding?
- What do my current and future business profile look like?
If you are unsure about any of the questions, your trusted loan brokers will be able to perform a comprehensive analysis of your business and provide unbiased clarity in no time.
You see, boss, the world of business financing can be a complicated battle for even the best business leaders. In your desperate search for extra cash, you have to balance between an urgency to pay the bills and choosing the best financing option that suits your business needs and future growth. Often, because of haste, bosses make the wrong choices that they woefully regret soon. And many never recovered from it. You don’t want to go bust right?
So why take that unnecessary risk and open yourselves up to misjudgment? If securing that loan is vital to your company’s survival and plans, then a smart boss will give himself the best chance for success. And to do that, you must surround yourself with the best people who know their stuff.
No need to be stingy and foolishly try to save on commission by applying for your own loan. Get the expert views from experienced business loan brokers whom you can trust to work hand-in-hand with you to go through the entire loan application process. Experts from established loan brokerage firms such as Beacon Financial Services are committed to making sure your business succeeds.
All you need to do is to ask for help. You win, they win. Everybody wins.