If you are in business in Singapore, there is a good chance that if you want to grow in your business and take it to the next level, you will require more capital than your own resources can provide. You can, of course, raise capital from your friends and relatives but you will then be diluting your ownership in the business and may not have the freedom to run the business the way you want. Whether you are thinking of hiring more people, carrying more inventories or renting larger premises, your cash flow will be under severe strain if you rely only on your sales receipts and your own capital. Unless you are a traditional Chinese businessman who is debt averse and is uncomfortable with borrowing money, a good option for you to consider is to get a business loan.
Take the example of a typical Chinese owned shop which was highly successful because it was able to secure cheap supplies from China. It was doing such good business that money kept pouring in and the business expanded to two more shops. It never occurred to the owners to borrow any money because of the healthy cash flow. Suddenly, out of the blue, the financial crisis of 2008 happened and people cut back on their spending. Pretty soon, the cash flow dwindled, and, unable to meet their obligations, the owners had to shut down a 30 year old business. By the time they got into trouble, it was too late to try and get a business loan. If the owners had created a cash cushion by getting a business loan, they would probably have been able to weather the downturn.
There are many categories of business loans such as:
- Working capital loans
- Business debt consolidation
- Lines of credit
- Merchant credit advances
One of the best forms of business loans to is to establish a line of credit for yourself. A line of credit usually does not require collateral so that your personal assets are not at risk should you have problems with your business. The other advantage of a line of credit is that you can draw down on the line of credit when you need it and repay it when you don’t so that you can save on interest charges. Otherwise, on a regular loan, the interest meter is constantly taking unless the loan has been fully repaid. If you are in bad shape like the Chinese owners above, you can consider merchant credit advances. Here you are selling your future receivables at a discount so that no repayment is required unless you actually make a sale. Of course, the amount you can raise will be small and the interest rate will be steep but at least you will have a source of funding. Factoring is another possible method of raising a business loan where you sell your receivables at a discount to a factor. You are effectively repaying your loan from your sales proceeds without the requirement of collateral or putting your personal assets at risk.