Small and medium businesses in Singapore are known to apply for business loans for funding development. But no less than 90% of such applications are disapproved by banking institutions, even though these smaller SMEs are following the same criteria that larger companies do.
Unfortunately, loan approval processes at large banks tend to be complicated. Besides, SME accounts do not bring the huge lending profits that larger companies can deliver, given the lower amounts involved.
The Challenge of Funding A Small Business
Launching a new commercial venture is never easy, especially for the owner of a small business. As one, you’ll be investing much time and resources to ensure that operations are going smoothly. Your waking life will be spent keeping things afloat while seeing to it that the place stays profitable as revenues come in.
Most business owners resort to using their savings to boost commercial prospects. Others might secure funding from capitalists or some help from friends and relatives who would help fund their operations in the early stages.
For most smaller firms, raising capital can be a challenge. Banking institutions are rarely happy to offer financing on the basis of their future potential, particularly start-ups that have been in operation for less than two years. Therefore, SMEs are usually less certain about where to find funding to keep them going.
Five Reasons Why Small Business Owners Use Loans
Expanding business operations
A business that attains a high revenue track must continue boosting its efforts to progress farther. Your fledgling business when successful may not stay limited for too long, particularly if consumers in other markets were to start looking for your firm’s products. To satisfy rising demand, you might be compelled to expand your venture. But, how do you tell when you can start moving forward?
Expansion is always possible whenever your business is consistently making profits and has a steady financial situation. With good numbers, you can readily forecast positive future returns upon completion of planned business development. If things are headed up, you can shape your expansion plans and move to apply for business financing soon after.
Increasing inventory levels
If you have a business that’s into retail items or seasonal trends, you must always ensure that inventory and supply levels are sufficient before the new seasons arrive or stocks run low. Such financing would help you acquire the inventory required to support marketing programmes while ensuring there’s enough in line to meet unanticipated demand. You wouldn’t worry then about immediately paying off the loan, for you could repay it once the high season’s over or there are sufficient revenues to do so.
Building operating capital
Business or working capital represents funds that are used for business activities, such that they can continue delivering every day. If you’ve launched a new venture, the profits you’re making might not yet be sufficient to keep all running continually. The extra funds provided by business loans can help you finance newer developments so that you can continue to deliver products and services and pay staff until revenues have increased enough to fund your business independently.
Certain banks offer specialized working capital loans, but these feature higher interest along with increased risks. Moneylenders usually offer more flexible options, so they are always worth checking.
Moneylenders are more likely to offer better services once you’ve proven to be a reliable borrower. A number offer high loan amounts, many have low interest rates, whereas others would not request your paperwork were you to apply again. It would be best for you to take up short-term loans that assist in developing a solid credit profile for your firm. You will see to it that payments are met on schedule so that you won’t be worrying about where to get funding the next time around. When moneylenders retrieve your records to evaluate any succeeding loan you might apply for, they will view you as a known borrower with solid credit.
Enabling new profit opportunities
Once your firm is pulling in huge earnings from the sale of products that draw good customer reviews, newer prospects will surely open for consideration. Your pursuit of these may require expanding commercial activities, forming professional partnerships, and making big investments. You should evaluate whether such opportunities will not present high risks, for the potential losses can be huge were you to be mistaken about their prospects.
Be sure to weigh every pro and con before you go headlong into a new commercial opportunity, to see whether it is worth pursuing or not.
Assessing The Needs of Your Business
Before applying for business loans, you should check the economic state of your firm in detail. Determine how much must be borrowed to get your firm on track. Do not exceed the actual amount required, as doing so may only expose you to extra burdens that you shouldn’t be grappling with after securing loans.
Always take time to consider whether and how you can make repayment while looking for other reasonable sources of funds. Would your venture continue without the funds, or else can you manage repayment with your ongoing income? Are more options available for funding operations?
You should make sure that any lender you work with is licensed by the government and can be trusted. Check all offerings and go with those who can offer you lower rates along with flexible payment plans that best minimize your worries going forward.
Once all these issues have been considered and you decide that you need a business loan, prepare your application for a loan programme that fits your plans with moneylenders who can be trusted.