Starting your own business has become a dream that many Singaporeans are able to call a reality. But with new business ventures come both risk and reward. That’s why it is not uncommon for small businesses or startups in Singapore to require some form of financing, in the form of term loans. If you’re looking to learn more about what term loans are and how they can benefit your business, read our simple introductory guide to secured term loans in Singapore.
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What is a term loan and what does it mean to have it secured with a property?
In layman’s terms, a term loan is a deal between a lender and a borrower. The lender provides a sum of cash up front and receives that cash back in the form of repayments, with interest, over a fixed period of time. Term loans are especially useful for businesses to purchase fixed assets such as equipment for production processes, as these allow for the generation of profit while the loan is being repaid.
A term loan secured with property, in particular, refers to the personal asset (your property) / company fix asset (property) being used as loan collateral. The lender will have legal mortgage over your property until the loan you have taken is repaid. This means, if you fail to make your repayment, the lender has the legal right to seize and sell your property in order to fulfil your repayment.
What is the difference between secured and unsecured term loans?
Advantages of secured loans:
1. Lower risk for the lender
One of the benefits of a secured term loan is that it presents a lower risk for the lender because the asset ensures repayment in the event of a default. A default refers to a failure to meet the legal obligations or conditions of a loan.
2. Lower interest rates for the borrower
Another benefit of a secured term loan is a complement to the low risk the lender faces. Lenders are thus more willing to lower their interest rate. Lenders will also be more willing to extend a longer repayment period resulting in lower monthly instalment which is beneficial in helping your business manage funds in the present day.
3. Larger amounts can be borrowed
More money can be borrowed together with the flexibility of having longer periods for repayment. This is also partially due to the lower risk the lender faces, as valuable personal assets such as property are used as collateral for the business loan.
Advantages of unsecured loans:
1. Personal / Company assets need not be used as collateral
Unsecured loans are issued on the basis of the borrower’s capability to repay the loan without pledging a valuable asset such as your property as collateral.
2. A more hassle-free process
The application process for an unsecured loan usually goes much more quickly than a secured loan, as long as you or your business reflects a high credit score. You will be required to provide information about your savings, income, employment, or credit history.
How does a term loan secured with property help your business?
1. Increase liquidity
Some businesses in Singapore experience low liquidity, being short on cash and unable to pay off short-term debts such as taxes or payment to suppliers. Term loans secured with a property are particularly helpful for businesses in tight cash situations with valuable properties at their disposal. If you do not wish to sell and downgrade your property for cash, a term loan secured with property may be the solution as it allows you to get money out of your house without having to lose it.
The loan amount is established by the value of your property, which will be determined by an appraiser from the lending institution. If the value of your property increases over time, you may be able to request for a higher term loan, using the equity of your property as collateral.
2. Affordable repayment
The loaning institution will feel a lot more secure knowing that you won’t be able to just pack up your property and hit the road. With something they can foreclose on, term loans secured with a property are thus considered low-risk. This means that businesses will be able to take bigger loans with lower interest rates! With the capacity to take big loans without worrying too much about high-interest repayment terms, you will be able to focus on your business operations with a peace of mind.
Reliable term loans in Singapore
As with most businesses, navigating financial challenges is not easy and a lot goes into working towards and achieving one’s business goals. However, in some cases, the solution may not be straightforward. ETHOZ Capital provides businesses with easy access to additional funds from working capital loans to property mortgage loans at competitive interest rates, so that you may fully focus on growing your business.
If you require assistance, our experienced Relationship Managers can help you out with this. Simply give our team at ETHOZ a call at 66547799 or drop us an email at firstname.lastname@example.org today!