Most businesses understand the importance of having enough working capital to continue smooth operation, which is why an SME working capital loan is a regular consideration regardless of business size. Working capital is the money businesses require to operate as well as the finances your company has to cover costs.
Operating costs include purchasing new inventory, paying employees, and even for facilities maintenance. Spreading your capital too thinly isn’t a good idea, but it also means that it may be good to consider a working capital loan. Before you do, there are certain considerations you need to know regardless of your size and industry.
How working capital loan compares with a business line of credit
There are few options for businesses in the world of working capital. Those options traditionally come with a business line of credit or business loans. A business line of credit aids a company in meeting its short-term financing needs. Unlike loans, businesses pay interest on the amount of credit they use. On the other hand, the line of credit is a flexible option in which a business can use at a different point of the company’s life.
How secured and unsecured working capital works
If you have a low credit score, a secured loan helps lower the bank’s financial risk. The business needs to put up an asset as collateral for the bank before they can get approved. Unsecured loans don’t have collateral, making it a better option for business owners looking for sme working capital loan.
Should you get a working capital loan?
Loans or debts are seldom a good idea for a business, but they can be necessary. Companies need to invest in their organization to expand and meet their goals. For small businesses, there are limited options for funding, so they would need to borrow money. The key is choosing the right loan product for the company or situation.
Paying off loans
You must factor in payoff options before deciding about what type of loan you want and the lender you choose. When looking for a working capital loan in Singapore, consider choosing a lender that gives the best rates, offers a flexible repayment period (up to 5 years), and one you can conveniently apply to.
Where to use your capital loan
Regardless of the type of working capital loan you choose, they are flexible on how you want to spend the loan. It can go toward almost all type of business expense.
For instance, you can use your loan for expanding your physical space, paying your employees, purchasing more supplies, or meeting large orders.
If you’re in Singapore, your business must be registered and operating in Singapore with at least 30% local shareholdings (Singaporeans or Permanent Residents) and have an annual group sales below S$100 million or have a group employment size of fewer than 200^
Annual sales turnover and employment size are computed on a group basis (i.e. All levels up for corporate shareholders holding > 50% of the total shareholding of the applicant company and any subsequent corporate parents, and subsidiaries all levels down). If you are eligible for sme working capital loan, you may borrow up to $1 million under Enhanced SME Working Capital Loan.
Now that you know the basics of a working capital loan, the next step is to find the right lender. As stated above, find one with the best rates, a flexible repayment period, and easy application arrangement.