How Car Rental Companies Have Changed In The Last Decade

First came the bicycles, which brought the roads. Soon after, came the motor car1 which revolutionised all corners of the world, from increasing a person’s mobility both physically and socially to opening up opportunities to changing the way we access services and facilities. As cars became an integral to modern life, it did not take long before rental services became available. Just as the first mass consumer vehicles rolled off the factory lines with Henry Ford’s model T at the dawn of the 20th century, several of the major car rental companies that we have today were also just starting out. Amongst these, are Avis, Sixt and Hertz which all have a history of over a century.

The quintessential car rental company is seen to have a relatively straightforward business model in which a company with a car allows an individual to use the vehicle in return for a payment based on the number of days or distance used. Indeed, this was the business model for many years and it served the market very well. However, the world is constantly changing and nothing stays the same for long. In an industry defined by speed and convenience, businesses have to evolve to maintain its going concern.

 

Short Term Car Rentals in Tune with Lifestyles of New Generation of Clients

Growing mobility, connectivity, a quicker pace of innovation and a desire to have more with less gave rise to the asset-light lifestyle2 where people pay for access to use an item instead of owning it outright. In a globalised world where employees frequently relocate for work or on the other side of the spectrum where the office is online and commuting is unnecessary, owning a car may not be the most financially prudent acquisition. In cases like these, access to usage rather than ownership is the important factor. This mindset has also trickled down to corporations that see it as convenient and also financially sensible. It can concentrate on its core business and no longer has to factor in distractions like maintenance, depreciation, disposal, or asset carrying values. The annual figures show a clear indication that this is a growth sector4. The Singapore car rental market revenue made up US$154 million (S$ 210.46 million) in 2018 and is expected to reach US$205 million by 2022. Projected to the coming years, revenues are expected to grow at a CAGR of 11.73 % from 2021 to 2025, with a growth of user penetration from 6.3% in 2021 to 9.3% in 2025. This has created an opportunity for car rental and leasing companies; one that these businesses have been quick to capitalise on.

 

Car Rental in the Digital Age

Short term car rentals have become a popular alternative to ownership and to continue building on this momentum, car rental companies have had to become much more competitive by offering the following:

 

Greater Options

People love choices. Being able to select extras like GPS, a sun roof, additional insurance or the ability to include home delivery and pick up of the vehicle all add to customer satisfaction as it accommodates their unique circumstances or preferences.

 

Flexibility

Convenience and adaptability is another feature that has come to be expected. This can come in the form of hourly, half day or even overnight rentals instead of the traditional daily terms.

 

Car Sharing

With smartphone apps, car sharing has entered a new realm of possibilities. It has never been easier to facilitate this mode of short term car rentals. Cars are collected and returned6 at several possible predetermined spaces for durations that are measured in blocks of 1 hour or 30 minutes. The entire transaction can even be completed on the phone without any human interaction. In addition to cars, Hertz has also made the model of car rentals available to commercial vehicles like good vans.

 

Going Digital

Smartphone apps have also been used to simplify7 the process of traditional vehicles. With it, customers can skip the queues and reserve their desired vehicle in advance with the options that they want. The apps have also proven beneficial to car rental companies that are now able to build more accurate customer profiles and make tailored offerings.

 

Subscription Based Models

Companies such as BlueSG and WhizzCar6 were amongst the first to operate on a subscription basis. Gradually, more established companies like Hertz and Enterprise caught on8. The advantage to the customer is more competitive pricing because membership all but guarantees that a client is locked into the service. Another benefit is the ability to switch between different makes and models of cars within the fleet of vehicles. A member could be driving an SUV to pick up passengers one day and making use of a goods vehicle the next day to make deliveries.

 

Corporate Customers

Just like individuals, corporate clients have been looking for ways to simplify their operations while still being able to preserve or improve their service levels. An asset light strategy suits businesses well as it allows them to tap into a greater range of resources and expertise. For example, chauffeured passenger vans to shuttle VIPs around can be accessed without the need to hire a company driver or to purchase a company vehicle which might be sitting idle for the large part of the day.

 

Future Proofing

Vehicles are considered long term assets and last for the better part of a decade or more. Buying a current model today exposes the owner to obsolescence at some point, especially as advances in technology accelerate. Short term rentals ensure that the newest or at least newer are available for use. This is especially true for technologies like electric or autonomous vehicles.

As the car rental industry undergoes rapid overhaul, the major players have been quickly adjusting9 to the many threats and opportunities. What this means for potential customers is the expansion of choice never before available, challenging the traditional concept of ownership and making short term rentals a more efficient, resourceful and viable alternative.

Business Equipment Singapore: Leasing Vs Buying

The four factors of production that drive an economy and keep businesses chugging along day after day, year after year are land, labour, entrepreneurship and capital. Of these, capital which comprises factory equipment, tools and other similar manufacturing agents is one of the easiest to obtain and scale according to output. It is the only factor that is man-made. It is the most conspicuous physical representation of any commercial venture. From a hand saw used to make bespoke furniture to computers or the large factory line machines churning out an endless stream of products, these are the long term physical assets that are the backbone of a company.

 

 

Business Equipment Financing

Acquiring the requisite business equipment is clearly essential if it intends to get off the ground and also as a going concern thereafter. These assets are also classified as Plant, Property & Equipment on a company’s balance sheet and make up a portion of a company’s net worth. It is vital to quickly and economically obtain, upgrade or replace the equipment needed to sustain business operations but purchasing equipment outright can substantially strain a company’s cash flow. Business equipment financing can be a good solution to keep a business functioning optimally or meet increasing customer demand.

 

 

Paying in cash

Paying for equipment in full with cash has both advantages and disadvantages. Capital allowances are permitted in investments on fixed assets. It reduces the taxable income at the end of an assessment year, reducing the tax burden. This can be claimed over 2 – 3 years or over the useful life of the asset as prescribed by the authorities for a given asset class. As the owner of the asset, one can also exercise the decision to modify, sell or dispose of the asset. This is usually not possible in a leasing arrangement where terms of the contract have to be abided by. This can be beneficial as one can then service, improve or customise the equipment without seeking the approval of the lessor who is the legal owner of the property.

If the business owner has full ownership of the machinery, it can be seen as a more liquid asset where it can be sold or further rented out to generate cash flow to fund other more essential parts of the business.

However, this may be a prudent avenue if the return on investment exceeds the loan interest rates. In such a case, taking the loan generates more returns than it costs and can be considered a smart use of leverage.

 

 

Taking a business loan

Approaching a bank for a loan is taking a step towards maximising the benefits of leverage. In such a strategy, a business owner buys equipment on credit by obtaining a sum of money from a bank and repaying over the life of the loan with interest. Like making capital investments with one’s or a company’s funds, the advantages of full ownership, as mentioned above, can be enjoyed.

These loans, however, may come with conditions of their own, especially if the item itself forms the collateral. In this case, maintenance, sale or modifications may be restricted. The item could also be repossessed and sold off if the borrower falls behind on loan repayments.

 

 

Government grants

Aiming to spur innovation, government grants or start-up schemes are also widely available to bring financial aid to the aspiring business owner. Several government agencies such as Enterprise Singapore, Ministry of Trade and Investment amongst others have made funding available to small and medium enterprises (SMEs) such as the often mentioned PSG (Productivity Solutions Grant) and EDG (Enterprise Development Grant). These defray the costs of capital investments but have to meet the requirements set forth, such as increasing employee headcount or achieving a certain level of revenue.  The upside is that these are the “cheapest” form of financing but could be restricted by the need to meet predefined milestones or losing some autonomy in business decisions.

 

 

Venture Capital/ Angel Investors

Both are similar in the sense that funds come from private sources. The difference is that venture capital pools money from multiple sources such as investment companies, a diverse set of individuals, pension funds or even other corporations while angel investors are described as investors using their own money.

These private investors are primarily concerned with a return on their investment and may set conditions and benchmarks to attain within a timeframe. Additionally, it is common for a percentage of equity in the company as part of the remuneration. This essentially gives away part ownership in one’s company.

 

 

Crowdfunding

Capitalising on the connectivity of the internet, crowdfunding brings together a disparate group of people to fund a project. This works best if the company is started to build a product that it can deliver to its backers. The upside is that there is no cost to the company, except in marketing the project to build interest and there is no obligation to release the product at all – the backers bear a large share of the risk. The transaction is facilitated by online platforms such as Kickstarter, GoFundme and Indigogo.

 

 

Leasing

Returning to more conventional territory, capital leases are one of the most popular methods of funding capital purchases.

With the availability of customisation and choices to choose from with regard to repayment, front load deposit or open-end payments, those looking for a lease are spoilt for choice.

In addition to traditional financial institutions that most borrowers are used to, there are also alternative lenders that can provide the right leasing facility. These equipment leases can also be catered for a transfer in ownership at the end of the contract period or the items can be returned to the lessor. Those taking up such arrangements can find the benefit of enjoying the long term use of vital equipment while freeing up liquidity or providing better control of cash flow management.

 

 

Equipment funding for small business

Small businesses and start ups face many challenges in establishing themselves in the industry. Choosing the right method to finance that all important investment in crucial equipment like factory hardware or even commercial vehicles to bring the goods to market is a long-term commitment that would make an impact on every business owner.

 

 

Van Rental in Singapore: Benefits of Leasing VS Buying

Vans are a do-it-all, utility vehicle that have a place in our hearts, from the iconic Mystery Machine in everyone’s favourite Scooby Doo cartoons that can carry a whole team of private investigators and large-sized dog to today’s beloved package delivery man bringing presents from the internet. With its upsized capacity, there are endless possibilities and functions that these versatile vans can perform. From carrying commuters to cargo, these capable carriers buck the adage that less is more. While it is clear that vans can help a person or a company accomplish a lot, it is less clear whether a cheap van rental or buying one outright is better.


Pros and Cons of Van Rentals

Van rental prices are one of the biggest advantages of choosing a cheap van rental instead of buying. The monthly rental is a convenient all-in-one1 fee that includes road tax, insurance, service and maintenance which can add up to quite a fair amount.

Although leased vehicles can vary in age, there are also leases of brand new vehicles. An advantage of leasing is that the lessee can change to a different van after every few years, given that a typical contract lasts for 3 – 5 years. This is an especially valid consideration as electric vehicles are becoming more efficient and viable for commercial purposes. Buying a van and fully paying off the loan in 7 years to be saddled with an obsolete vehicle instead of a productive asset negates the main advantages of buying altogether.

This shorter commitment period with leasing contracts is advantageous as it brings with it the flexibility to extend the contract, amend it or upgrade of vehicle.

This brings us to some drawbacks of cheap van rentals. Contracts may include a clause for excessive use that restricts wear and tear such as disallowing unspecified drivers, putting limits on total mileage or to restrict operation of the vehicle outside of the country. There may also be restrictions in the event of an accident, since the insurance policy is included in the contract.

As with any amendment of contract terms after signing on the agreement, costs may be incurred. Likewise, breaking the leasing contract prior to expiry can be expensive so although it is a shorter term commitment than buying a commercial vehicle, it still places a financial burden on the lessee for some time.

On the other hand, a passenger van rental can make accounting sense by presenting it as an operating expense rather than having a capital expense on the books. Additionally, the company may wish to avoid listing a liability such as one incurred when taking a loan to buy a car.


Pros and Cons of Buying a Van

Ownership comes with a certain amount of freedom. When the company considers the prevailing van rental prices and chooses to own instead of rent, it is free to operate, maintain, use and even customise as it sees appropriate. Operating costs can be controlled by using cheaper workshops and cosmetic repairs can be delayed if necessary. At the end of the service life of the commercial vehicle, it can also recover some costs.

If purchasing first-hand, the newest model vehicle can be obtained and almost always, the mileage would also be lower. This is beneficial because newer vehicles perform better than older ones, needing less repairs, are more fuel efficient and are in better general condition.

Buying a commercial vehicle could also be a good option when interest rates are low or if the creditworthiness of a buyer entitles him to the best rates. The disadvantages are that these loans are considered when calculating a person’s Total Debt Servicing Ratio (TDSR) which limits an individual’s debt ratio.

The downside is that the buyer has to bear all the costs of ownership such as the down payment, maintenance and repair costs, COE bidding, road tax and eventual disposal. It is a long term commitment and some of these costs like servicing and repair can get most expensive with age.

Finally, because servicing a loan can be a long term commitment, there is a risk of default unlike when one is just leasing. A default will negatively affect credit worthiness and may affect application for other loans in the future.


Which is Better – Cheap Van Rentals Or Buying a Van?

Choosing which route to go down depends on many factors, especially the economic climate which determines the future business outlook as well as uncertainty. There is a global trend towards default on car loans and that can be taken as an indicator of difficult times and also as a signal that interest rates will increase to mitigate the effect of the defaults if it persists.

Aside from these macroeconomic factors, there are 3 main considerations to take. First is liquidity and cash flow. Buying a commercial vehicle involves large upfront costs. Taking advantage of a cheap van rental helps to reduce the financial burden and spreads out the costs over time. If this van is integral to the business operation, it helps generate cash flow to finance its monthly costs.

Next is maintenance, especially if your enterprise needs to operate a fleet of vans. The all-in-one pricing which includes servicing, accident recovery and repairs could help to streamline the business instead of having to dedicate time to do everything by oneself.

Finally, there is the consideration of total cost over the period that the commercial vehicle is used. This includes all promotions, cashback and inducements given by the leasing or dealership and also takes into consideration prevailing factors like interest rates and COE prices. When these are all taken into account, then one can properly appreciate the softer factors like choice, flexibility and convenience, and make a fully informed choice.

Mercedes Servicing: External Specialist Workshops or Dealership After sales?

The joy of driving a continental car is palpable from its widely proclaimed reputation for quality, comfort and luxury that precedes it, and subsequently quickly confirmed when one steps behind the wheel of a Mercedes, BMW, Audi or Volvo. From the distinctive comfort of the driver’s cabin to the electronic functions ergonomically installed within easy reach, the driving experience is an elevated experience.

However, continental cars also have the reputation of being costly to maintain; servicing is more expensive, genuine parts take longer to arrive, prone to breakdowns. This tarnishes the gilded dream that some have of owning a prestigious continental vehicle such as a Mercedes Benz. It’s as much a well tuned driving machine as it is a status symbol. This then raises the question of how to keep this gorgeous machine purring like a kitty without breaking the bank?


A Growing Taste for Continental Vehicles

The population of continental cars has been on the increase1. Growing affluence, demographics and no small amount of advertising has pushed the popularity of continental cars. Taking the absolute numbers of Mercedes Benz as an indication, over a period of the decade leading up to 2020, it can be seen that the German brand has grown over 100% from 30,467 to 64,886 vehicles. In the same period, the ever popular Toyota fell 9% while the total car population in Singapore increased by 6.4%2. Despite the growing fondness for these European imports, the fact remains that its upkeep is not the cheapest. To the new owners of a Mercedes Benz, and probably to many existing ones, the perennial question is how to keep running costs low. That usually leads to the million dollar question; are specialist workshops or dealership-operated after sales centers the better choice for Mercedes Benz servicing?


The Options for Mercedes Servicing

New cars typically come with a servicing package for the first few years. Within that time, repair work might also have to be done at the dealership’s service center in order to keep to the terms of the warranty. After that, an owner has two choices, to continue going to the dealership or to switch to an independent car workshop.

Mercedes Benz servicing comes in two packages, simply named A and B3. Service A is done after the first 10,000km, while service B is performed after 20,000km, with each alternating every subsequent 10,000km or 1 year.


Service package A being a minor servicing consists of the following at a cost of between $400 – $500.

  • Mercedes Synthetic Motor Oil Replacement
  • Oil Filter Replacement^
  • Brake inspection
  • Tire pressure checks & adjustments (including the spare)
  • Maintenance counter reset

Service package B is considered major servicing and costs roughly $700 – $800 to perform the following:

Mercedes-Benz Synthetic Motor Oil Replacement

  • Oil filter replacement^
  • Cabin filter replacement
  • Tire pressure inspection
  • Brake fluid inspection
  • Brake component inspection


The equivalent at an independent workshop could cost5 approximately $300 and $600 respectively. Which option to choose looks like a foregone conclusion but how does the private workshop achieve its cost savings?


Advantages of Using an Independent Workshop for your Mercedes Servicing

Cost savings is the biggest advantage of going to an independent service center, speed is another which comes about because there would naturally be many more independent workshops than a dealership can operate. Securing a date and time to suit your schedule would be much easier. Drivers might also find that last minute bookings may even be accommodated.

Returning to the point on competitive pricing, independent workshops are usually able to offer lower prices for several reasons. Lower overheads is one reason. Operating as a standalone workshop, it does not have a big facility, multiple departments or a large payroll to account for, so overheads are typically lower. They are also able to source for non OEM parts, discounted original parts or even used genuine parts. They are at liberty to exercise more resourcefulness to meet clients’ budgets.

Dealing with an independent workshop is also a more personal process. Over the years a relationship can be built up whereas an authorised workshop is more impersonal. As such, better pricing or discounts can be extended to their loyal customers. The workshop owner would also be better acquainted with the problems and service history of the vehicles; knowing its particular quirks and how to repair it more efficiently. In contrast, drivers usually meet the service advisor at an authorised workshop and would not have a chance to meet or speak with the mechanic assigned. An additional benefit of building relationships with privately owned businesses is that there is greater flexibility to go the extra mile, such as staying open a little longer to allow drivers to collect their car at the end of a long day at work. They might also be more willing to do work that authorised service centers would not be willing to due to the time and labour needed or in a bid to upsell products.


Advantages of Dealership Service Centers

Servicing a vehicle at the dealership is strictly by the books. The rules of engagement are predictable and fixed. The mechanics follow a manual and a prescribed list of steps when attending to vehicles. Mechanics are all trained to a uniform degree of expertise and the appropriate industry standard tools and diagnostic equipment are used. Original parts are always used to guarantee optimal performance but that could take time to ship in which adds to the cost.

The process could also be more streamlined as many have adopted the use of apps or websites to receive and make bookings. Even when dropping off the car, the driver only has to deal with a service advisor and never has to meet the technician or understand any of the mechanical issues. Lastly, as a larger entity, dealership owned service centers are less likely to close down.

As with many decisions in life, few questions can be answered with a definitive answer. Both options have their pros and cons. The decision to pick one over the other comes down to the value a driver puts on time and quality assurance. Finding a trustworthy and experienced private workshop can take time in order to reap the benefits of better personalised service at a more favourable price. To make the decision just a bit more complicated, large independent workshops such as ETHOZ blur the line between the two and can offer the best of both worlds.

Loan Secured by Property: What are the best assets to pledge?

Loans can sound like a taboo word and it can well be if taken hastily or for the wrong reasons – much like how self-medicating, even with the best of intentions, can be harmful. However, there are many prudent, intelligent reasons that justify borrowing. 

 

The advantages of a loan secured by property or other collateral 

Secured lending comes with lower interest rates or better terms compared to unsecured lending. The logic is simple, if the mechanics are anything but. Evaluating risk is at the heart of what a banker does, regardless of whether he is providing financing advice or extending facilities to customers. Accurately assessing the risk profile of its clients and astutely managing that risk is what the banking industry is built on.

An unsecured loan is riskier because a banker or financial institution can only depend on a borrower’s creditworthiness to evaluate whether a loan would be paid back on time, in accordance with the contracted terms. In case of a failure to satisfy one’s repayment obligations, the bank has fewer options available for recourse. The bank does not automatically have a right over any of the borrower’s property and instead has to first commence legal proceedings in order to obtain a writ of seizure, that would allow a bailiff to make lawful claims on personal property of any value. This would then be liquidated and go towards restitution of the defaulted loans. In the worst case scenario, non performing loans would be declared bad debts and written off, after the proper accounting rules have been followed. Although banks would prefer any and all loans to be guaranteed by an asset, the relatively smaller amounts usually do not warrant it or in the case of student loans, the lender might have few assets worth pledging.

In contrast, secured loans are much less risky because the lender has a lien on specific assets linked contractually to the loan. This gives the lender a legal right to seize the pledged property in lieu of payments. With this privilege, banks are able to extend better loan terms. Apart from lower interest rates, late penalties might also be more forgiving where there could be longer grace periods and smaller late fees. Typically, secured loans are also easier to obtain, and could be approved for larger principle sums.

 

 Common Types of Secured Loans

 Secured loans are commonplace, to the point that it is often unnoticed. Often, the most significant ones encountered by most of us are the auto loan and property mortgage. This means that the bank can repossess the vehicle or foreclose on the property when sufficient time has lapsed and a certain predetermined number of payments have been missed. For businesses, instruments such as letters of credit, standby letters of credit facilitate act as form of surety between merchants and suppliers, and thereby providing a form of short term loan. On a smaller scale individuals might be familiar with pawnshop loans and payday loans. With the former, personal property such as jewellery or other expensive effects are kept with the pawnbroker and returned only when the loan is repaid. Payday loans, as the name suggests, pledges an individual’s future income in return for a loan upfront. These are offered here by licensed money lenders and the process could be as simple as writing a post dated cheque. To investors, margin trading is yet another example of the many forms of secured lending in everyday life. In this case, an investor sets up a trading account with a brokerage firm and uses leverage to multiply an investment. However, if the markets turn on the investor, the brokerage can liquidate the account to recover the loan amount.

 

 Quality of Collateral

 Just as there seems to be a hierarchy in the type and assortment of loans, so too collateral varies in preference. When valuing an asset to be pledged, four factors are considered: condition, liquidation value, ease of liquidation, and nature of the asset. The first condition takes into account depreciation of physical assets and its remaining value. The next two consider its market value, cost of liquidation and efforts needed to dispose of the asset. The final point takes note of the type of asset and its scale.

With these guidelines, two methods for valuing collateral are employed. One of them is to compare it to similar assets with established monetary values as a proxy. The other is to consult with a qualified assessor with strong knowledge of the asset type.

Through these studies over time, a correlation between quality of collateral and quality of borrower had been determined. It was found that individuals and companies that could provide strong collateral were also more likely to honour repayment terms and had a lower probability of defaulting. Additionally, a link was also found between those with high quality assets to pledge and a higher degree of prudence in the use of loan funds. All these factors point toward a lower risk profile.

In short, high quality assets mitigate are of suitable value relative to the loan amount and are easily liquidated – all of which reduces the risk to the lender. Cash, as always, is king. Cash in bank accounts make the best collateral. Of equal quality are near-cash assets  such as certificates of deposit, foreign currency, securities, bonds and other similar instruments. Next in line are high value tangible assets like property, vehicles, precious metals and jewels. At the other end of the spectrum, increasing willingness to expand the pool of clientele has prompted institutions to accept less conventional forms as collateral. These can range from expensive equipment like golf clubs and electronics to exotic items such as art and wine collections or medical instruments.

Just like the lenders that assess risk before extending a loan offer, the borrower also has to evaluate risks involved in accepting. However, if it is managed properly both parties can reach a win-win situation.

 

 

 

5 Alternative Ways to Finance Businesses

Businesses count on cash as the sustenance it needs to operate and similarly, even your very own future cash cow will need to consume a lot of the green stuff before you have the opportunity to milk it. Some of these funds will go towards investments in assets that are vital to start up the company, while some of it will go towards fixed costs such as salaries, software licenses, website subscriptions or rent. Aside from these overheads, there are also variable costs such as certain utilities or transportation to cover. All this clamour for cash has to be attended to. There are various ways this can be accomplished, with external business financing being a potentially beneficial way to bridge these needs.

 

Just over 10 years ago, business financing in Singapore primarily originated from traditional sources like banks and credit unions. This typically involved a credit evaluation and resulted in a plain vanilla loan, with a choice to pledge collateral or not. Factoring or invoice financing, which was already commonplace since the 1960s1 where a company would sell its receivables to  a third party for upfront funds was as far as financing options would deviate. Then came the subprime mortgage crisis that precipitated the largest2 global financial crisis since The Great Depression of the 1930s. In its wake, reforms were instituted to curb the risky lending practices that was the cause. More oversight was established, such as increased capital requirements3 as required by the Dodd-Frank act in the USA.

 

Evolving to meet the demand for business financing

Tightening of credit has proven to be a challenge for smaller companies. This difficulty in securing financing can result in missed business opportunities, negative cash flow, negative working capital. In the subprime recession years from 2007 – 2009, there was a sharp contraction of Small & Medium Enterprises (SME) loans granted globally. With new SME loan growth rates hitting the bottom in 2011, the following years up to 2019 continued to see little growth4. As SMEs were considered riskier propositions by financial institutions, access to financing had become more difficult since then5. However, with the need for finance to fuel business growth still a pressing need, other players stepped in to fill that gap, giving rise to the innovation and inventiveness that is alternative financing.

 

 

Crowdfunding

Crowdfunding is a method of financing that bridges the gap between companies and members of the public looking for a profitable investment. It draws together small amounts of capital from a large number of people to fund a commercial enterprise. This is done through an online platform, with examples  like Kickstarter, Indiegogo and Gofundme.

 

Far from being a one-trick pony7, crowdfunding comes in several varieties.

 

 

Peer-to-peer lending

A technology based platform links multiple lenders of small unsecured amounts to pool together larger amounts. The administrator of the platform determines the interest rate and also evaluates the riskiness of the borrower.

 

 

Equity crowdfunding

Similar to buying shares through a stock exchange, equity crowdfunding involves sale of a stake in a business to a large number of investors.

 

 

Rewards-based crowdfunding

Commonly used as seed money to finance a product, investors make specific contributions in exchange for rewards, or delivery of the product itself at the end of the campaign.

 

 

Donation-based crowdfunding

As the name suggests, no compensation is expected or given but the financial aims are met by the contributions of multiple individuals.

 

 

Profit-sharing / revenue-sharing

Future profits or revenues of the business are shared with the crowd in return for providing funds now.

 

 

Debt-securities crowdfunding

Individuals invest in a debt security issued by the company, such as bonds or debentures.

 

 

Hybrid models

Investors are compensated by several of the above ways for providing money upfront.

 

One type of crowdfunding is not necessarily better than another. However, it is the motivation behind each type of crowdfunding that matters because it has to appeal to potential investors and their motivations. Crowdfunding can be a risky investment to those that contribute to the fund as they may come up empty handed if the project fails. Conversely, to the business seeking funds, the benefit is that there is no obligation to make good on its promises if the project fails.

 

 

Fintech Financing

Companies like Paypal, Amazon, Alibaba Tencent and even Grab all have a strong client base, a popular platform to access its clients and cash to spare. These companies are no stranger to industry disruption and have taken on traditional financial institutions to provide loans to those typically overlooked by banks and lending institutions and also to take a bite of their pie.

 

Fintech loans are able to leverage on its technology to assess risk more accurately and cheaply. It also typically has lower operational costs due to innovations in technology which it can pass on to clients as savings. It is also able to process loans quicker, even able to turnaround approval of loans on the same day7.

 

 

(Alternative Business Financing Singapore – fintech)

 

 

Government Assisted Funding

There are many initiatives to encourage innovation and to sustain promising startups in the critical initial stages. Government agencies such as Spring Singapore, Economic Development Board and Enterprise Singapore have various schemes to assist SMEs financially8.

 

These can come in the form of loans at attractive interest rates or outright financial assistance in areas such as productivity, technological upgrading or research & development.

 

 

Venture Capital Financing

This kind of funding involves a group of investors, institutions or investment banks like Goldman Sachs and Morgan Stanley that identify and nurture startups that they believe have long-term potential. In exchange, these investors hold private equity stakes in the company. In addition to relinquishing some ownership in the company, the founders often have to satisfy other conditions that pertain to its operations.

 

 

Initial Coin Offerings (ICOs)

An initial coin offering is similar to an Initial Public Offering (IPO), except that instead of receiving company shares for their investment, investors receive a cryptocurrency token. These tokens are often purchased in other more established cryptocurrency tokens such as Bitcoin or Ethereum.

 

If an ICO is successful and passes the ICO stage its price would already have risen. If it gets listed on an exchange, it can be traded like shares. In addition to this, investors would also be entitled to product, service or bonus tokens as indicated by the white paper.

 

The benefits of an ICO to companies is the ease at which one can be launched, especially in Singapore which is amongst the most receptive in the world to the launch, and exchange of digital currencies. There are few regulations required by the Monetary Authority of Singapore (MAS) and no license is needed. The company has to be a private company in Singapore, and publish a prospectus under certain conditions.

 

 

Alternative Business Financing in Singapore Funding the Underserved

SMEs make up 99% of companies in Singapore12 and contribute about 43% to GDP13. Despite the significant contributions to the economy, this group is often underserved by traditional financial institutions. It is an unsustainable status quo as they seek funding to grow. As necessity is the mother of invention, alternative business financing in Singapore is sure to keep growing.

 

 

Advantages and Disadvantages of Hire Purchase

If you have ever been in the market for big ticket items or planned for substantial capital investments, chances are that you would have considered hire-purchasing as a potential financing option. From as far back as nineteenth century England, which saw the emergence of these contracts and its rapid adoption through the crown colonies, until today’s car market, hire purchasing has been a popular option with customers considering an expensive purchase.

Considering just how commonplace these contracts have become, it can come in a number of guises (for example it is known as an installment plan in the USA or simply a car loan in Malaysia) and flavors but all adhere to the same basic principles. At the heart of it, hire purchase contracts involve an exchange of goods between buyer and seller after an initial payment or set-up fee, with the outstanding balance being paid with interest over a period of time. However, the defining aspect comes with ownership of the asset. Throughout the tenure of the contract, ownership of the goods remains with the seller or financial institution drafting the contract. It is only upon conclusion of the agreement, that the buyer has an option to go ahead with the purchase for a charge called an option-to-purchase fee. After which, ownership then transfers to the buyer. Such an arrangement presents several advantages and a few disadvantages to an individual or enterprise.

 

Advantages of Hire Purchase

1. Ready to Use

The most immediately apparent advantage of hire purchasing is that the asset or good can be immediately utilised and put into service with much less initial outlay than would otherwise be required. This typically ranges from a deposit or set-up fee of 10% for most assets, to 30% for new vehicles. A business that needs to make capital investments to kick-start its operations could find this the most expedient choice.

 

2. Easing the Financial Burden

Similarly, the financial burden is also reduced since payments are periodic and spread over a length of time. Start up costs can be significant but absolutely essential and so breaking up this commitment into smaller pieces can dramatically alleviate the financial strain.

 

3. Lower Interest with Secured Lending

Hire purchasing can also be a cheaper form of financing. The nature of these contracts makes it similar to collateralised loans, since the asset ownership only legally transfers to the buyer at the end of the agreement. As such, interest rates are generally lower than other forms of business financing like unsecured term loans. Assuming that the buyer does not terminate the agreement or repay early, the EIR (Effective Interest Rate) of hire purchase agreements can vary at about 5-6% as compared with unsecured loans that may be as high as 9%.

 

4. Flat Interest Rate

Another advantage is that hire purchase contracts have a flat interest rate. This means that the interest rate remains the same across the life of the contract without fluctuating. This may or may not be beneficial depending on the prevailing interest rates but it keeps payments predictable and thus makes budgeting, as well as cash flow management easier.

 

5. Accounting for Hire Purchase Contracts

For those keeping close tabs on their finances, there are also some tax and regulatory upsides to using hire purchase contracts to finance asset purchases. The first is that GST (Goods and Services Tax) is not charged on the interest portion of the contract so there are no additional financial obligations owed to the government in this area. Next, is that a tax relief can be claimed on qualifying fixed assets under the Hire Purchase Act in Singapore. Referred to an asset allowance, 100% of the price of goods can be written off over 1, 2 or 3 years, allowing the buyer to manage the amount of tax payable. Lastly, even the interest portion is listed as a qualifying allowable business expense which can be used to reduce the amount of tax payable.

With regard to accounting, the treatment of hire purchases on the books can have several benefits. This is because equipment obtained this way is not counted as part of the company’s assets, at least until ownership has been transferred through the exercise of the option to purchase at the end of the contract. One prime example is the analysis of metrics such as fixed assets turnover, that investors and other stakeholders might be interested in. Since the fixed assets turnover is expressed as a fraction of turnover against the value of fixed assets, a company could reap the benefits of larger turnover as generated by new equipment and machinery, without having the value of the same assets on the books. The same case can be made for other measures of operational efficiency like return on gross fixed assets or return on net assets.

*Note: The above information on Tax & Accounting treatment is strictly for reference only, business owners should seek professional advice from your own tax consultant or auditor.

 

Disadvantages of Hire Purchase

1. Overspending

Just as there are many good reasons to opt for this method of asset financing, there are several drawbacks too. The advantage of perceived affordability is a double-edged sword. With financing available, an entity may be proverbially biting off more than it can chew and proceed with a purchase under a hire purchase contract when it would be more prudent to put it off. There could also be the temptation to choose more expensive or technologically advanced options that now become within reach. As a contract between buyer and seller, terms can be priced, negotiated and included or omitted while it is being drawn up. Zero downpayment, for instance, allows the buyer to take home the goods with nothing out of pocket. However, this would surely increase all or any of the other terms like duration and interest.

 

2. Inflexible Contracts

In the event that a company over extends itself and defaults on payments, the item can legally be repossessed. On the other hand, if a company subsequently finds itself in a position to make full payment, it may not always be possible to repay early or there could be additional fees involved to do so. With a payment default, it doesn’t just end in the seller regaining possession of the asset either. It will go on record and have a negative impact on the buyer’s credit profile, affecting the ability to apply for financing in the future. This also includes any future decisions to enter other hire purchase contracts, as the terms are dependent on the applicant’s credit history, and a better credit score usually results in better terms.

With the introduction of Total Debt Servicing Ratio (TDSR) in Singapore to calculate an individual’s capacity to obtain financing, especially for home ownership, the number and value of hire purchase contracts one holds comes into consideration. The contract to take home the latest electronics or speed home in a sports car will have an impact on getting a home loan.

 

3. Asset Obsolescence

Finally, the length of the contract might be a substantial amount of time, stretching into years. By that time, the asset could have depreciated so much that it has no value at the end of the contract. In such a scenario, it might be better to take on a finance lease which could potentially be more cost effective.

 

Who benefits from Hire Purchase?

As we have seen, with its unique set of pros and cons, hire purchasing may not be the most suitable alternative for every individual or business but it still plays a vital role in the litany of financing options available. Small scale businesses and entrepreneurs can benefit most from hire purchase. High value, crucial and strategic assets can be hired and later owned. This ensures that they can start using the asset right away from the very first day and use the money generated to acquire the very same assets later.

 

 

Leasing Commercial Vehicles: 6 Important Factors to Consider

When your business needs a commercial vehicle, it’s a cost to your business however you obtain it. Hence, it’s very important to consider what you need and how to obtain the vehicle for your own business, to keep costs low and operations hassle-free. In that respect, one of the most popular ways to operate a commercial vehicle is to lease it.

Leasing removes the need for companies to also own and service their vehicles, and disposing of them in the end. It provides a flexible mode of vehicle fleet operation that can be adapted to different periods of time and needs.

Here are some factors you need to consider when planning to lease a commercial vehicle for your operations.


1) What Kind of Vehicle Do You Need

The very first factor is of course to identify the kind of vehicle you need for your particular operations. From cars to vans to trucks, each vehicle type offers different pros and cons, and is suited for different purposes. You need be clearly understand what purposes you need it for, and what impression you want the vehicle to make of your company.


2) How Long Do You Need It For

A key benefit of a lease over car ownership or renting is its suitability and cost-effectiveness for a mid-length usage period that is itself very flexible in length, ranging from a few months to a few years. When deciding to lease a car, it’s important to figure out how long you want to lease it for.


3) What Functions Do You Need

If you’re leasing a vehicle for commercial functions, chances are you’ll need to take into account the vehicle’s functions and its fittings. Some of these fittings include a canopy, a tailgate, an enclosed cargo space, a chiller or freezer, or an open deck, for cargo vehicles.

For example, if you’re a frozen food company, you need a vehicle that has been fitted for refrigeration.

Good car leasing companies will provide you the option of customising your commercial vehicle with the necessary fittings and functions that you require to ensure the vehicle suits your operational needs.


4) What is your Budget

Once you’ve sorted out the kind of vehicle you want and for how long you want it for, the dollars and cents are the most important consideration. As a business, you will have your own budget, and you’ll want to ensure that the vehicle you get can fit into that budget. Carefully plan your budget, and look for vehicles that suit your needs that also fit within the budget.

If you are unable to find a suitable commercial vehicle to lease at your current budget, this may be a sign that your expectations are too high for your budget. You will have to either increase the available budget to cater for this, or reduce your expectations or the amount of customisation you demand so that it will fit within your desired budget.


5) What is your Credit Rating

A commercial vehicle lease is similar to a loan, in that a vehicle is lent to you in exchange for regular payments. Hence, like loans, your credit rating, and the rating of your company, is crucial for securing the best terms for a commercial vehicle lease.

One good way to ensure you get the best deal possible is to check your credit score, and ensure that your credit score is healthy before applying for a commercial vehicle lease.


6) What are the Payment Terms

Lastly, when you have found the perfect commercial vehicle and the perfect leasing price, the last thing you need to do before signing on the dotted line is to look carefully at the payment terms, to ensure that they are agreeable to you. Consider not just the downpayment, but also the instalment schedule, as well as how fees and charges may be levied in certain situations.

Familiarise yourself with the terms, and if necessary, discuss and negotiate the payment terms to suit your business’ financial situation and cashflow.


Lease With The Best

To ensure the most favourable car leasing experience and packages, it is important to lease your commercial vehicle from a provider that is experienced in the automotive industry and has acquired a reputation for some of the most competitive lease packages in the industry.

ETHOZ has decades of experience in offering car leasing and car rental services for both private and commercial vehicles, as well as offering financing and other equipment leasing services for businesses.

Committed to help businesses get the wheels they need for their operations in an affordable and flexible manner, ETHOZ offers commercial vehicle leasing stands ready with a versatile fleet of ready vehicles to serve your needs at a good and affordable price.

Speak to us today, to start unlocking more capabilities in your business!

A Comprehensive Guide to Car Leasing in Singapore 2021

Car leasing is a common practice in Singapore among businesses that have short-term needs for company passenger transport, but cannot justify the cost of buying and maintaining one under the company’s own cash flow.

A smooth leasing experience will depend on your knowing what to do, and what to look out for. Here’s a detailed guide on how to go about leasing a car in 2021 to save you time and money.


Step 1: Choose a Car

The first step you need to take is to choose the ideal car model for your company’s needs–whether it be a generic Toyota or Nissan for general use, or a more luxurious BMW or Mercedes for the personal use of the CEO or the transportation of VIPs, choose a model that provides the right mix of comfort, luxury and practical functions.

You’ll also need to choose a model by balancing how long you need it for, against how much the car might cost. If you need the car for a longer period, you may want to avoid more costly makes and models that will drain your finances.


Step 2: Test Drive It

Next, you need to confirm your choice by test driving it and seeing how it handles–especially if you are personally going to drive this car. There’s no point leasing a cheaper model if it makes you uncomfortable for the duration of your lease.


Step 3: Make Sure You Have a Good Credit Score

A car lease is basically the loan of a car to you–you have to pay it back in instalments, and with interest. Hence, like a typical loan, having a good credit score is important to help you get the best deal possible, with the most favorable payment terms.

A good credit score gives your lease provider the confidence that you will be able to meet your lease instalment payments, and pay on time as well, so it is crucial that your credit score is good. Being in poor standing for credit can result in your lease application being rejected!

You should undertake steps to ensure that your score is good by paying your bills on time and punctually.


Step 4: Compare Lease Deals

Once you’re sure you’re ready to start hunting for a lease for your desired model, it’s time to start looking around. Speak to different car leasers in Singapore to find out what their rates for leasing might be, or, for the best deals with the most reputed dealer of all, you could simply speak to us at ETHOZ car leasing.

What you should be looking for in lease offers are the valuation of the car, its age, as well as the amount you would be expected to pay for the car, as well as the payment schedule–when and how much you will need to pay for each instalment.


Step 5: Negotiate Suitable Payment Terms

Once you have settled on a prospective car lease that suits the duration you need the car for, you can discuss payment terms with your chosen lease provider, to ensure a package that best suits your needs and financial situation. For example, you can discuss how much downpayment to put down upfront, and also your timetable for payments.


Step 6: Familiarise Yourself with the Terms and Conditions

As with any agreement and contract you sign, you should familiarise yourself with the terms and conditions for the car you are leasing. Every contract comes with small print that stipulate numerous terms, and once you sign on the dotted line, you are deemed to have agreed and committed yourself to fulfilling these terms, regardless of whether you read the contract and knew the terms were there or not.

These terms can include fees and charges payable for changes to the lease, penalties for late payment or damage to the vehicle, as well as other obligations and requirements that you may have to follow as a lessee. Ensure you have read these terms in detail before signing!


Step 7: Inspect Your Car Thoroughly

The last step before taking possession of your leased car is to carefully inspect the vehicle for yourself. As with all car rentals, you will be held responsible for any damage done to the vehicle once it leaves the custody of the lease provider, so while you are still there, give it a thorough check to ensure that it is working well and undamaged in all major aspects.

Test the engine, check the gauges, lights and brakes, and visually inspect all exterior and interior areas for damage, such as dents, scratches, tears or discolourations and blemishes. Ensure that you report all these to your lease provider and make sure these are recorded as having been there before you took over the keys, or you will find yourself having to pay for damage that you never caused, when you return the car.


Leasing with ETHOZ

In addition to providing you some of the most competitive packages in Singapore for car leasing, ETHOZ also offers one of the widest ranges of available car makes and models for your selection, to meet your every need and purpose.

As one of the most established car rental providers in Singapore, ETHOZ also offers short term and long term car rental services for your needs if the duration or cost of leasing is not ideal for your situation.

With decades of market-leading experience in the automotive industry, ETHOZ is the first and only port of call you’ll need if you’re looking for a good car lease! Contact us today!

A Straightforward Guide to Choosing Business Loans in Singapore

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.