Debt has always been looked upon as a negative thing. However, when it comes to business, taking a loan can actually be a positive development. This is because you will be taking a debt for purposes of yielding a return on your investment, unlike other debts such as wedding loans that are purely consumed and do not give any returns.
In general, there are 3 main types of business loans, and these are given below:
I. An unsecured business loan
Based on Money Kinetics’ Guide to Licensed Money Lenders in Singapore, this is a loan that is suited for businesses which need a boost in cash flow for operations or for expansion. An unsecured loan does not require any security, but you will need to have a guarantor. In countries such as Singapore, the government works with banks to give loans to business owners. The following are the types of business loans that are offered with assistance from the government.
• Business First Loan
This loan has the following eligibility requirements.
- The company can be as young as 6 months.
- At least 30% of the company’s shareholding needs to be held by Singaporeans.
- The guarantors of the loan need to have an income of at least S$ 30,000 per year.
With the Business First Loan, you can borrow up to $100,000 over a period of four years.
• SME Working Capital Loan
This is another type of loan that is offered on assistance from the government.
The eligibility requirements of this loan are as follows.
- The business must be at least 2 years old.
- At least 30% of shareholders should be Singaporeans.
- The guarantor should have an income of at least S$24,000 per year.
With the SME working capital loan, you will get access to an amount of $300,000 over a period of 5 years.
• The revolving short-term loan
The revolving short-term loan is yet another unsecured loan offered through the assistance of the government.
In order to access this loan, you need to satisfy the following requirements.
- Your business should be at least 2 years old.
- At least 30% of the business shareholding should be held by Singaporeans.
- You can borrow up to $200,000.
With this type of loan, you will be able to draw a minimum of $ 10,000 from the loan limit at any point in time. You can repay this amount in monthly instalments, after which you can make another drawing from the available amount of the loan limit while the loan continues to be paid.
There are several benefits of taking an unsecured business loan. Some of these are given below:
1. There is no collateral needed.
An unsecured business loan is a lower risk for you as a business owner because you will not lose any asset in case of default. In addition, the fact that you do not need to look for a security makes this loan easier to access.
2. You can build your credit rating.
Once you take up an unsecured loan, you are able to build your credit rating by ensuring that you make all your payments on time. A good credit rating will help you to get access to more credit in future.
3. There is flexible use of funds.
An unsecured business loan is flexible in terms of use. You can use it for any purpose within the business. This is unlike a car or house loan where you are restricted to using the funds for the specific purpose given.
4. Quick processing time
Most unsecured loans take a short time to process because they do not require collateral. They also have shorter loan terms. Therefore, you are not subjected to long periods of debt.
II. A commercial property loan.
If you have been desiring to get ownership of your business property, then this loan is ideal for you. You can borrow up to 80% of the value of the property or the purchase price, whichever is lower. A commercial property loan usually has a repayment period of up to 30 years.
You will need to fulfill the following requirements in order to access this loan.
- At least 30% of the company’s ownership should be held by Singaporeans.
- The company should be registered in Singapore in order to access this facility.
The following are the advantages of taking a commercial property loan.
- Appreciation of property value
The property will appreciate over time. Therefore, you will make gains on your investment without doing any extra work.
- Ownership of the business
You will have complete ownership of your business. You will no longer have to pay rent to the owner of the property.
- Interest rates
Property loans generally have lower interest rates than many other types of loans.
III. An equipment financing loan
If you need to purchase some new equipment for your business, then this is the right loan for you.
You can borrow as much as 90% of the value of the equipment or the buying price, whichever is lower. The repayment period is usually up to 8 years and you can purchase both old and new equipment. You can also get a loan that is assisted by the government through the Enterprise Singapore Scheme.
To be eligible for this type of loan, you need to meet the following requirements.
- The company must be registered in Singapore.
- At least 30% of the company’s shares must be owned by Singaporeans.
The following are some of the advantages of taking an equipment loan.
- High percentage of financing
You can get 90% or even 100% financing on the value of the equipment or the purchase price, whichever is lower. This will help you to save plenty of cash.
- Improved output
New equipment will help you to get better output both in terms of quantity and quality. This will lead to an increase in sales and eventually an increase in the overall profits of the company.
- Asset management services
Many lenders of equipment loans also provide asset management services. They may do installation, maintenance and even disposal of the asset once it becomes obsolete.
In conclusion, you need to be careful to take the type of business loan that will meet the immediate needs of your company and give you optimal returns.
