As our economy enters into a recession due to the Covid-19 pandemic, the main concern for businesses is cash flow. Cash flow issues are one of the top five problems that many Small and Medium-sized Enterprises (SMEs) face (even when there is no recession or pandemic). Businesses need to maintain sufficient funds for their day to day operations, employees’ salaries and other fixed costs. Hence, a tight cash flow situation at this crucial moment could mean serious consequences for the company.
Just yesterday, 22nd May 2020, former DJ Daniel Ong announced the closure of one of his eateries after losing a couple of hundred thousand dollars during this pandemic. There may be some in the Food and Beverage (F&B) sector who are not affected by the Covid-19 situation, and have, in fact, seen a rise in revenue from takeouts and deliveries; but unfortunately, many F&B companies and restaurants are facing a drop in revenue by more than 50% since "Circuit Breaker" started.
And looking at the current situation, even after Circuit Breaker ends on 1st June 2020, our economy will only gradually open up in 3 phases. This means that retail shops and also fitness studios will still have to remain close. If these businesses have not gone digital, then how are they going to survive?
The Government’s Job Support Scheme pays out 75% of wages for local employees in the months of April and May 2020, and the subsequent 7 months will be at a tiered percentage for different industries. However, this salary support only covers local employees, and not even enough to cover their CPF contributions. Furthermore, what about the salary of the many foreign talents that our society relies on?
Why Do You Need A Business Loan?
The greatest misconception about business financing is that incurring debt is always a bad thing. Many people associate loans with financial difficulties and cash flow issues. While this is usually undeniable for companies in a poor cash position, there are actually many advantages from taking on a loan. Do you know that even well-established companies like Apple still take on business loans?
A business loan is not just useful when a company is facing with cash flow issues, but it also comes into great help when companies are looking for funds for expansion, to invest in new IT solutions or equipment, to stock up on inventory due to foreseeable increase in demand, or even for marketing purposes. During this lull period, it is also a good opportunity for SMEs to take a step back and review their business models for Post-Covid economy.
With an effective interest rate of as low as 2.5% per annum, this is also a good chance for companies to apply for a business loan and take advantage of the low interest rate. Moreover, most loans now have a moratorium option to defer principal payment for six months to one year. This means you only need to service the interest payment for the first six months or one year, and thereafter continue to service the principal and interest payments for the remaining loan tenure.
In addition, there is usually no early penalty for early loan repayment. Hence, it is important to draw up a business plan, to know how much funds you need now, and plan ahead for Post-Covid business.
Three key questions SME owners should ask themselves before applying for a business loan:
- What is the purpose of the loan?
- How much do you need?
- Can you afford to pay the monthly installments?
All this being said, applying for an SME business loan and getting an approval may not be an easy process. Besides knowing what are the important factors that affect your loan approval, a good relationship with your banker, or using an experienced business loan broker, will help greatly in your loan application process. Before your company’s financial situation deteriorates further during this recession, it may be good to plan your financing needs in advance, and start securing funds for your business now.
As the saying goes, “If You Fail to Plan, You Plan to Fail”.
You can also check out your eligibility on our Temporary Bridging Loan Programme comparison page or fill in the Interest Form to get a free loan assessment now!
Please also note that due to overwhelming applications for business loans, the turnaround time for loan processing may take longer than usual. Hence, please be prepared to wait even when banks state that they will get back to you within two or three working days. Meanwhile, while waiting for your business loan to be approved, you may want to check out what are the Government's Grants that your company might be eligible for.
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Not sure whether your company can be qualified for bank loans or alternative lending? Try our A.I assisted loan, and Smart Towkay team will send you a lending report within 24 hours' time. With the lending report, we aggregate and recommend the highest chance of approval be it with BANKS / FINANCIAL INSTITUTIONS or Alternative lenders like Peer to Peer Lenders or even B2B lender!
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