When doing business in Singapore, oftentimes you will find the need for loans, to bridge the gap between what you have and what you want to achieve. Borrowing is a normal and common way to obtain additional financing, whether you are a startup, SME, or a large corporation.
However, the finance market is a very wide area, with numerous lenders offering a sometimes bewildering array of loans and packages. With Singapore’s reputation as a financial hub, any businessman would be spoilt for choice. So how do you pick the right business loan for your business? We present a simple, straightforward guide to help you identify your needs and narrow down your criteria.
1) Know Your Loan Purpose
When you take out a loan, one of the questions you can ask to narrow down the loan you should pick is what purpose the money is meant to be used for. There are many business situations where money may be needed. Some are concentrated in one area, such as the need to purchase a specific asset or expand the business somewhere. Others are more general, such as day-to-day cash flow issues.
Depending on the purpose and how general it is, there are different kinds of loan available for you, and picking the business loan most suitable for your purposes can help save you a considerable amount of money. For example, a term loan is a general loan of money that can be used for any purpose, but it may also come with a higher interest rate than loans for specific purposes.
If you know exactly what you want to use the money for, then it is best to find a loan that suits the specific need you have (such as a working capital loan if you need to use the money to defray day-to-day operating costs) rather than take out a general loan. Of course, if you don’t know, or prefer to keep your options open, then it is better to take a term loan, though you may have to accept paying a little more in interest on average.
2) Know Your Loan Cost
To any businessman, cost is at the top of their minds, because costs can make or break a business. Of course, when borrowing, the same applies. One of the major factors you should use to select a good business loan is the cost of the entire loan package. This consists not just of your loan principal, but also the interest, and also the fees that are added onto the main sums.
When comparing interest rates, different business loan packages offer a wide array of different rates, calculated in a variety of ways. It’s important to note that you should know how they charge and calculate your interest rate, and calculate which rate actually gives you better savings. For example, the lowest interest rate number may not actually be the cheapest interest cost, most commonly because the rate fluctuates, or because the loan period makes you pay interest for longer. One thing to note is that the interest rate is also affected by your personal and business credit rating. Choose the interest rate and lender that best keeps your costs low over the whole loan period.
If you have two packages with very similar rates and you can’t choose between them, then perhaps the additional costs will be the deciding factor. All loan packages come with fees and charges, and these can amount to a significant sum. Again, choose the loan that keeps your costs low over the whole loan period, so make sure you don’t just look at interest rates, but also look at fees to make sure they don’t erase what you managed to save from a better interest rate.
3) Know Your Lender
One small factor, but a potentially significant one, is whether a lender lends regularly to your industry. If the lender does, the chances of them approving a loan, or at a better rate, may increase. While this may or may not lead to savings in money, it would certainly help to save time, especially in situations where your company may urgently need the loan and time is of the essence.
4) Know Whether You Can Afford It
Lastly, the most important factor in picking a business loan is whether you can actually afford or risk it. Both in terms of the amount you’re borrowing, and the payment terms, you must have some measure of confidence to pay off the loans, i.e. to have enough in your company balance each time you need to pay an instalment.
If you can’t honestly manage the ideal business loan package you have your eye on, it may be better to replan your business goal and borrow a more manageable loan.
Can’t Go Wrong with ETHOZ
As one of Singapore’s most well-known names, ETHOZ has been serving the needs of businesses for many years. In addition to providing affordable and high-quality personal and corporate car rental and leasing, ETHOZ also offers loans to help companies achieve their business aims through ETHOZ Capital. Offering term loans, working capital loans, as well as a range of SME financing and microloans, ETHOZ is the ideal partner for your business loans and other financing needs.
Get in touch with us today, and discover how much we can help you with some of the most suitable loan packages for your business today! You can’t go wrong when you go with us.