Business Loans

One of the primary goals of starting a business is to make money. However, it takes an undeniable amount of capital in order to properly launch and sustain a business. This amount of money for a given venture has to do with the unique goals and needs of the entrepreneur. It is crucial for a new business to develop resources and additional means to obtain further capital because without proper financing, a new enterprise may find it extremely difficult to compete with an already established competition. In addition, the lack of funding may also lead to a company closing or even worse, bankruptcy. It is important to consider the pros and cons of different financial sources that are available in order to make an effective educated decision to fund a startup.

Commercial Bank Lending

Unlike SBA loans, commercial bank loans are not guaranteed by the government. Obtaining a bank loan may be difficult since banks use different many criteria when lending money, including the amount and purpose of the loan, company data (management and operations), the primary and secondary sources of repayment, financial statistics (balance sheets, cash-flow statements), credit history, etc. First-time entrepreneurs may face several rejections from different banks before being approved. There are three different types of financing options available to entrepreneurs so that they can fund their startups.

Term loans (aka conventional loans) are loans that are typically used to purchase equipment, buy a new building, acquire another company, or otherwise expand operations as the business grows. Business owners have the option to choose between fixed-rate or adjustable rate loans that have terms of up to 10 years based on amortizations of up to 20 years. Depending on an individual’s personal qualifications, they can borrow up to $250,000.

Revolving lines of credit is a line of credit that is granted to a business by a bank that is payable over the course of one year. This amount can be anywhere from $5,000 to $50,000. The entrepreneur can use the credit when needed and will be charged based upon what is used. In addition, the borrower’s residential or commercial real estate serves as collateral.

Intermediate term debt is a type of short-term loan that are usually 60 months or less in duration and secured by collateral. Pros- Commercial banks can offer business owners adequate amounts of needed money and lines of credit quickly. They are much easier to obtain when they are backed by assets.

Cons- There is always a chance of rejection when applying for any of these loans, especially if the business owners have poor credit history, little income, and no assets. The entrepreneur should also be honest and report their company’s progress to their banks or if they received capital from other sources. The business owner will also owe the borrowed money whether their business succeeds or not.

Commercial Finance Companies

There are non-bank commercial lenders (aka commercial finance companies) that can also offer money to business owners. Unlike banks, they are willing to look beyond one’s credit history and assets in order to provide the needed capital for startups. Commercial finance companies have emerged in recent years and give opportunities to companies that banks will not lend money to.

Pros- Non-bank commercial lenders look beyond financial history and possession of assets and will lend money to companies who have been turned down by banks.

Cons- These lenders often require a business plan, personal financial statements, cash-flow predictions, and the borrower to provide 20-25% of the needed capital themselves.

Personal Loans

Another good way to obtain needed capital is by getting a personal loan rather than a loan under the business name. There are two common types- a home equity loan and a home equity line of credit.

Home equity loans provide a valuable source of funding for startups. The entrepreneur’s home is the collateral and the borrower is locked into a fixed term for five to thirty years.

Home equity line of credit is a line of credit that is granted to the borrower. Their home is the collateral and they only pay interest on the amount used.

Pros- Both types of loans are widely available through many financial institutions. The business owners’ home is the collateral and interest is tax deductible.

Cons- One disadvantage for home equity loans is that they are comparable to an additional mortgage on your home; if the borrower cannot make repay the amount, their home may be at risk for foreclosure. These loans are also risky in the sense that if the business fails and the entrepreneur is not able to make payments, their home will be at risk. In addition, if a borrower’s house value drops, they may end up owing more on their property than it's worth, especially if they plan to sell their home in the near future.

Personal Installment Loans

This type of loan is an unsecured installment loan that does not require any collateral for approval. It can be used in combination with other types or sources of capital-generating practices. These loans are required to be repaid within five years since it provides only a modest amount of money to the borrower.

Pros- This type of loan is easier to obtain than a standard small business loan with a fixed interest. Since the product is unsecured, it is ideal for business owners who are homeowners, or who have a one-time borrowing need.

Cons- A disadvantage is that these loans have high interest rates, limited borrowing availability, and a non-deductible interest.

Insurance Policy Loans

A policy loan is a loan that is issued by an insurance company to an individual that uses the cash value of a person's life insurance policy as collateral. The individual can borrow up to 80% of the surrender value of his/her life insurance policy.

Pros- There is flexible repayment options where the borrower can repay the loan in whole or in part at anytime.

Cons- Traditionally, these were loans issued at very low interest rates; however, this is no longer true. In addition, if the borrower (the entrepreneur) fails to repay the loan, the money is automatically withdrawn from the insurance death benefit.

With our ever growing resouces and articles on singapore company incorporation, we aim to provide you with a one stop hub for starting your company in Singapore.

Check out our various resources and articles on Singapore business incorporation, Singapore business formation, Singapore company formation, accounting outsourcing, auditing, bookkeeping outsourcing,corporate secretarial, internal udit, liquidation, tax compliance, tax planning, payroll outsourcing and other financial advisory services in Singapore.

Singapore Company Incorporation At a Glance

• Excellent tax benefits from small-to-midsize companies: 0% taxes on 100K annual profits (first 3 years), approx. 9% tax on annual profits up-to 300K
• Low overall tax rate of 18% on profits above 300K
• Zero taxes on capital gains in general
• We can incorporate a Singapore company in one day
  (after incorporation documents are signed by you)
• 100% foreign shareholding allowed
• Minimum paid-up capital of $1 only
• Singapore rated as #1 in ease of doing business in the world
• Singapore rated as the best place to work and live in Asia
• Immigration visa (entrepreneur pass) available for company owners wishing to relocate to Singapore to run their new Singapore company

Procedure and timeline for Singapore Company Incorporation

The basic steps are as below:

• Get company name approval
• Prepare registration documents
• Client to sign company registration documents
• Register company
• Open bank account