Starting a business as an entrepreneur is a tricky venture, especially if you do not have enough funds to get your business started and keep it going while you try to earn enough to be self-sustaining or want to borrow personal loans for business use. Unfortunately, if you go too deeply in debt, you may find it hard to stabilize your business and make a breakthrough.
To prevent this from happening, entrepreneurs must learn and understand the difference between good debts and bad debts and how they could maintain their business afloat without going into debt.
If you are an entrepreneur, here are the things you should know and help you with your debt.
Good Debt Vs. Bad Debt
There is no such thing as good or bad debt. However, in Singapore, poor financial practices are the only thing to blame for problematic debts that will take you decades or an entire lifetime to pay.
The biggest hurdle for business in Singapore and any future business owner is to find the best source of capital. Kickstarter or crowdfunding projects is a form of debt; you repay your investors with the benefits you owe to them by listing the advantages of your product.
On the other hand, Singapore banks are the best source of working capital loans. They will ask you to provide security in the form of excellent credit scores, properties and assets they can liquidate in case of business failure, and a solid business plan.
What might seem “bad” when it comes to business debt is the lack of a clear plan. Most Singapore banks disapprove of business loan applications because they can’t see the small business’ way to gain income in a set period of time. Tying this in with the annual percentage increases the startup needs to pay interest rates in addition to their regular payments, the startup will sink fast if the financial institution approves their financing.
Therefore, “good” debt handling is when entrepreneurs understand — and have crunched numbers — with optimistic, balanced, and pessimistic insights on their possible income. Furthermore, showing the appeal of working capital loans of their ventures’ products or services will convince banks and other lenders about the feasibility of their concept too.
Good or bad financial management — not good or bad debts — exist. However, you’re having a bad time if you’re not using proper fiscal practices and dealing with immense interest rate-inflated loans you can’t pay off monthly.
Why do entrepreneurs end up getting huge debts?
There are eight major reasons why entrepreneurs end up with huge debt and what you should do when it occurs.
- You quit your job immediately after your startup began its operations. While it feels tiring, having no means of income for least 30 local days and depending solely on bank or lender funding is a sure way to make the business fail and get yourself in a mountain of debt. This will also put higher interest rates.
- Your company’s performance in Singapore is still unstable, causing your revenue to be unstable.
- Every startup business in Singapore gets to this point when their income is not the same every month. When this happens, you must have a backup plan on how to pay your bills on time and without problems because you may find it difficult to get your debts sorted out in the long run. Do not hold off payments as much as possible and pay them immediately so you won’t have problems once the next month comes.
- You do not have an extra fund source.
- While your business in Singapore is still picking up its pace and do not generate regular income every month, you will need to have a backup fund source to pay your workers, your production and other bills. You should not press your business to make what it could because you will need to give it time to pick up a working trend to get everything established. Try putting in more profits so your company can sort out its operations and help it become self-sustaining.
- You are overconfident with your revenue.
- When your company in Singapore gets its first pay cycle, do not immediately jump in a large project or expansion and take out a loan. You may think it is a productive debt to help the business when you get the funds, but you may find yourself under heavy debt. Plan your expansion project thoroughly and sort out the things you need to pay first.
- You have no clear plan for the future. Banks always prioritize an SME that have a set plan from startup, expansion, and future stability. True enough, it’s better that banks require you to submit your business plan prior to having a loan approval. But still, the long time they take to approve an SME loan makes them a huge disadvantage.
How to Get Out of Detrimental Debts?
If you find your company in Singapore is in a huge debt situation, you must act upon it as fast as possible. Your unpaid interest rates and loan amounts can start your company’s decline and may put you in less than ideal financial situations thereafter. However, you can get out of significant debts if you use the following steps
1. Debt Management
If you can take out a business loan in Singapore, you have services that offer debt management too. A considerable loan with high interest rates can be cumbersome, especially if they have high interest rates. Thanks to debt managers, you can organize your assets and liabilities. In doing so, debt managers can negotiate with your provider of business loans Singapore, such as pushing your payment schedule a bit to help your business have enough breathing room.
Debt management services can only go so far as to communicate your business’ intent while organizing everything involving your debt. The entire effort of addressing your loan repayments is up to the business itself.
2. Consolidation Services
If you’re having trouble with a business loan Singapore repayments, then it’s time to use consolidation services. Numerous SME has gained significant advantages by addressing all their high-interest SME working capital loans first. In doing so, they prevent inflation of debt and interest rates making it manageable and easier to handle. This result is advantageous, especially if the business is struggling with generating income while dealing with high interest rates.
Consolidation services can create deals to lessen the interest rates on your behalf. Once you go through their application process, SME micro under huge debt can get rid of their problems in less than 5 years.
3. Filing for Bankruptcy in Singapore
If SME loan management and consolidation fails to yield significant results, your business has the right to government support through bankruptcy declaration. The government will appoint a property executor once they approve your bankruptcy application. This individual is responsible for finding appraisers, organizers, and other aspects of liquidating your business assets to repay your debtors. The usual time bankruptcy proceedings — including asset liquidation and payment — end within 5 years.
In Singapore, debtors can initiate bankruptcy applications against businesses within an established parameter set by law. However, an SME can prevent this from happening by ensuring they organize their capital loan repayments, generate steady income, and provide exceptional stability.
4. Selling Your Assets
In Singapore, declaring bankruptcy to address all your repayments to debtors can be quite drastic. However, downsizing to repay your business loans in Singapore in five years is possible by selling your company’s valuable assets. Singapore has a huge selection of appraisers that work solely with SME industries to liquidate their assets with the best value possible.
However, doing this will not help you re-negotiate your payment schedules with financial institutions to avoid huge interests. Debt management and consolidation companies can do this for you. Therefore, proper timing in selling your assets to avoid missing deadlines is greatly important.
5. Selling a Part or the Entire Business
Similar to asset liquidation, you can take out a low-interest loan using a part of your business as equity. However, we highly advise you not to do this. Singapore Bank loans have huge interest rates even if you take out secured loans. It’s best to find private buyers to own a part of your business (as ‘silent’ or non-authorized business partners/ investors).
Furthermore, if circumstances are dire but some individuals find great worth in your business, selling the entire venture with its outstanding debt is possible too.
6. Debt Reduction
In some situations in Singapore, you can start by utilizing a debt reduction plan that would help you get rid of all the expenses you do not need for your company. Just like fat in one’s body, there are areas in your company where you can reduce expenses.
When you get some funds, use the money to help reduce these huge debts and try to use the money to improve your company’s performance. It may take a lot of work, true, but with a little patience and dedication, you can help reduce the debt your company has and focus on what is important.
Once you pay off an expense, use the money you allotted for that expense to pay off the next one until you pay everything. You can begin with the smaller debts and work your way to the larger debts. If a debt has large interest rates, go pay them first.
7. Using Moneylenders
You can also approach moneylenders in Singapore and get a personal loan to help you with the bills you need to pay immediately while your company is stabilizing its revenue and operations. Moneylenders can offer flexible personal loans that would match your needs and you do not have to worry about paying it immediately. You can even consolidate all your debts into a personal loan which has a low-interest rate, effectively helping you reduce your monthly repayments altogether.
Of course, before you approach a moneylender in Singapore, you must do your research on the available loans you can use for your expenses and approach only licensed moneylenders. To check which moneylender is approved by the government, you can check out the website of Singapore’s Ministry of Law for more details.
Loan Advisor is a finance directory comparison website, it is a portal where you can compare loans of different services from various licensed moneylenders. Through the years Loan Advisor has been one of the best Loan Comparison Portal, what makes the site valuable is that it has all the best moneylenders compiled in their site.
So whenever you want to check various computations from these licensed moneylenders then Loan Advisor will help you with that. No more hassle, Loan Advisor will do all the legwork.
What’s even better is that when you choose Loan Advisor, the site doesn’t get any cut or add any amount on the loan you’re going to take. The portal’s goal is to help you get the best loan comparison thus helping you pick the best loan offer in Singapore.
Luckily, for entrepreneurs and SMEs in Singapore, Loan Advisor can help you expand your reach by helping you get funded in just a short period of time. If you need to get a business loan, you can visit Loan Advisor.