COVID-19: Could A Business Term Loan Help You Survive The Current Crisis
Looking into SME (Small and Medium Enterprise) financing in Singapore to get you through a rough patch? Could a business term loan help your small business?
Times are hard, and the COVID-19 crisis has impacted economies, financial structures and SMEs. Getting approved for a business loan in Singapore can help certain types of businesses to continue running. There are plenty of business loans to choose from and, while some may be more effective than others depending on your situation, the business term loan is one of the most commonly chosen types of loans out there.
How does a business loan work?
In a nutshell, the aim of a business term loan is to help businesses expand and maintain their operations with a focus on covering urgent cash needs.
This is how it generally works:
- A deal is conducted between a borrower and a lender in which the lender gives a lump sum of cash upfront and expects to receive that money back over a certain amount of time through a series of smaller payments.
- The borrower must also pay a percentage of interest, which acts as an incentive for the lender.
In addition, there are few restrictions for businesses that require business term loans. SMEs might commonly face issues when trying to opt for loans (especially from banks). However, getting a business term loan approved is generally easier than getting other loan types approved. As long as the business generates enough revenue and has a good credit history, applying for a standard business term loan should be simple enough.
There are various types of business term loans
Not all businesses are made the same, which means that preferences, requirements and decisions based on the need for capital with regard to loans may vary. In light of this, there are different types of business term loans.
Generally, standard repayments are often required on a monthly basis, but it's possible that alternative lenders might require repayments to be issued on a weekly or daily basis. Again, this depends on the discussion you have between yourself and the lender.
The length of the repayment period also depends on the use and conditions of the business term loan. With regards to the amount of the loan, it depends on whether businesses approach traditional banks and financial institutions, or alternative lending sources. It could range from a few thousands to as much as S$5 million - SMEs can apply for the government-assisted financing schemes, such as the Temporary Bridging Loan Programme whereby maximum loan quantum could go up to S$5 million, with an interest rate cap at 5% per annum.
It could improve business budget management
In many instances, a business term loan can come with either a fixed interest rate or a flat fee. What this means is that a business will be able to make payments which are consistent and last over the loan tenure of whichever loan is chosen.
Budgeting is a huge part of business survival, especially when it comes to times of crisis. Managing your cash flow, as well as being able to figure out the different financial conditions that your business is in are important for surviving hard times. This is why it's important to find a business term loan that helps ensure consistency with regard to payments.
A good, consistent business term loan will allow you to easily calculate the ongoing finances that your business can afford. With that, you'll be able to determine whether or not you can keep up with monthly payments up until the loan tenure is over.
Do you have a specific expense to manage?
There are several different types of financing options that relate to small businesses.
If a small business has a particular expense that's causing concern, then it might be a good idea to opt for a term loan from a credit union, bank or online lender. This is because the nature of the business term loan could help manage a specific high-priority expense that would be difficult to finance in times of adversity (such as during this COVID-19 pandemic).
Business term loans can help business owners cover purchases that are larger than usual, by spreading the impact of large costs over smaller fixed payments throughout the term. This is similar to how student loans work. Think of it as a financial aid of sorts for improving future profits and driving stability, especially in times of uncertainty.
Pay attention to the length of the business loan tenure
One thing that business owners should watch out for, is the length of the loan period. In fact, this is arguably just as important as securing the funds in the first place. Short-term loans for small businesses are often repaid within a year or less. However, longer-term loans could result in an obligation that you may or may not be able to bear.
If it can be helped, you might want to consider not stretching the loan term out too long, especially if your purchase is manageable over a reasonable period of time. Short-term loans can offer speedy financing to support immediate expenses, while long-term loans might come with the risk of accumulating debt. Your ability to commit to loan repayments over a long term is something to consider while you plan for your survival through the tough times.
Short-term loans offer speed and flexibility
Short-term loan programs from alternative lenders, such as peer-to-peer lending platforms, are often funded rather quickly. A person might even be able to get such financing within 24 hours. In turn, businesses won't have to wait for funds for too long before being able to utilize the cash when needed the most.
Getting approved for a short-term loan is also more likely because business loan lenders usually won't require lengthy paperwork or collateral as long as the loan amount requested is fair. These factors change if businesses decide to go for longer-term loans with greater amounts.
Another advantage of short-term loans is that businesses can often work out a customized payment plan since there are a variety of payment options to choose from. As a result, business owners get to establish and customize a loan program that caters to their preferences.
Cash flow issue has always been a major concern for SMEs, especially with the impact of Covid-19 on businesses, seeking SME financing has been more crucial than before. By being well-informed, you can understand how a business loan can help your company in this difficult time, and what are the key factors to look out for before taking up a business loan.