In Singapore, it is not uncommon for SMEs to apply for loans to fund their businesses. However, at least 90% of these loan applications from SMEs are rejected by banks even if these clients have submitted the same requirements that large companies need to submit if they wish to apply for loans. Unfortunately, the credit approval process for banks is quite complex and for banks, SMEs would not bring them high income due to the loan amount they are borrowing as compared to larger companies.
Challenges in Creating a Business
Setting up a new business is not easy, especially if you are a small business owner. You need to invest a lot of time, funds, and effort to ensure everything runs smoothly and be able to make high revenue. As the owner, you will invest your entire being in getting the business stay afloat and ensure it will not fail.
A majority of business owners would use their savings to establish their businesses. Others may get their funds from capitalists or aid from their families or friends who are willing to help fund the business while it is in its early stages.
For the majority of small businesses, raising capital is a hard task because banks are not very happy in offering capital for small businesses and start-ups (who have not been active for more than 2 years) because of their potential. As a result, they are uncertain where to get money to ensure their business stays afloat.
5 Major Reasons Business Owners Need a Business Loan
- Expanding operations
Every business, once it makes a high revenue, will need to bolster its efforts and continue going up. Your business cannot remain small for long, especially if people start demanding for your products in other places. To cater to the demand, you must expand the business. However, how can you tell that you are ready to move forward?
Expansion should be done when your company or business is making consistent profit and your finances are all in the green. With these numbers, you can immediately predict if you will have positive returns in the future once expansion is done. If your business is heading to that route, design your expansion plan and apply for a business loan right after.
- Additional inventory
If your business involves retail or seasonal items, you need to ensure you already have supplies and inventory ready before the next season comes in or before stocks run out. A business loan would help the business purchase the required inventory needed to get things ready and ensure you have enough to meet the demand. You don’t have to worry about paying the loan immediately because you can have it paid off after the season or when you have earned enough to pay it off.
- Boosting Business Capital
Business capital or working capital is the money you use to ensure your operations continue daily. If you are just starting your business, the profits you make are not enough to ensure your business stays afloat. Using a business loan can help you fund these daily operations and ensure that you will be able produce products and pay your employees until you have earned a lot to fund the operations independently.
Some banks offer special business capital loans, but they have high interest and presents high risk. However, if you check the offers of moneylenders, they have more flexible options.
- Improving Credit
If you borrow from moneylenders, they tend to provide better services if you prove yourself to be a good borrower. Some offer higher loan amounts, some lower their interest rate, while others will not ask you for your paperwork when you are applying for a second time. As a result, it is best if you take in short-term loans to help you develop a good credit history for your business. Of course, you have to make sure that you can pay on time so you do not have to worry about the next time you borrow funds. When moneylenders check your records for your next loan, they will see you are a good borrower with a good credit history.
- Enables New Business Opportunities
When your business has finally made a landfall of earnings and your customers give your products good reviews, new opportunities will definitely be next in the list. These opportunities may include expanding the business, business partnerships, or even investments. You will need to ensure that the opportunity is not a high risk one because the losses can be great if you are not careful.
Make sure you outweigh the pros and cons first before you jump into an opportunity. Once you do, you will be able to determine if you should go for it or not.
Checking Your Business’ Needs
Before you get a business loan, it is ideal that you check your business’ state. Determine how much you need to borrow to help your business flourish. Do not go over the amount you need because it will just provide an extra burden for you that you should not be dealing with when you get a loan.
You should also consider if you will be able to pay the loan and how, as well as determine if there are other funding sources you can use alternatively. Will the business be able to go on without it or will you be able to manage the payments with the income it makes? Are there other options for you to use to fund your business?
You must also ensure that the moneylender you will approach for a business loan is trusted and licensed by the government. Check their offers and pick the one that will provide you with a lower rate and a flexible repayment plan that will not give you worries.
When you have considered all of these facts and decide that a business loan is a must, start building your application and create the loan program that fits your business with the moneylender you can trust.