Loans are a great way to finance the growth of your business without giving away equity. But of course like all things, there is always a price to pay. In this case, you pay interest in return for the money that the bank or financial institutions offers you. There are many areas to cover with regards to debt; in this article, I will just talk about the really basic stuff. Enough to get you started on the most basic of all forms of debt available from outside sources.
Let’s start with some common questions and some seemingly basic stuff;
- Am I eligible to take up a loan from the bank or financial institutions?
- How can I increase my chances of getting a loan from the bank?
I shall cut to the chase and not lay out the basic criteria that most banks in Singapore would require. You can easily get those from the bank’s website as they are very public pieces of information that don’t really tell you much, just go to their loans page and the basic information are all there. They are pretty much all the same stuff though. So here are the things that banks and financial institutions look at before deciding if they would even lend you any money in the first place.1. Your income tax declaration
This is fairly easy to understand. All directors should have a minimum level of income declared in order for the bank to decide if you are credit-worthy. While this number is never published, the reality is that if you declare an income level of less than $24,000 per annum the bank will not consider your company credit-worthy.
2. Credit bureau ratings of directors
A credit bureau rating is essentially a score given to you based on the credit facilities that have been offered to you by the financial institutions in Singapore. Without going into details of what each individual rating means, just do the following and you will be of good credit rating. While they may seem like common sense, but you will be surprised how many people don’t actually commit to doing so.
- Settle all of your outstanding credit card spending on time and in full.
- Do not have any cash advances. If you do, settle them in full.
Even if there are some fees that you may not be happy with and don’t feel like paying the bank, just settle it and then negotiate with the bank for whatever reason you might think you do not want to pay any fees. E.g. membership fees, card fees etc. Don’t jeopardise your credit report over some unpaid fees, its most likely not worth it.
3. Average daily balance in your account
Again, this is something that is not published openly. However, the general guideline is to have a minimum average daily balance of more than $10,000 in your corporate bank account. Any lower than that, you would probably not be able to get the loan quantum your desire or even get a loan at all.
If you run a cash-based business, have the habit of banking in the cash daily. Its tedious and I hate it, but by not doing so the bank will never know how well your cash-flow is. The bank operates on data, if the money is not shown in there it does not exist, not when you want to prove to them that you have healthy cash-flow.
4. Bank Accounts balances
You are usually required to submit 6 months of bank statements. The banks are looking at 2 things here.
- Average daily balance. This should not be less than $10,000, any lower than this would basically make you look financially weak.
- No negative balance. You should not have any negative balance at any point in time, and ideally ZERO bounced cheques.
5. Financials of your company
Obviously, banks would ideally like to offer loans only to companies that are profitable. However, the reality is that even companies that are not profitable are able to secure loans. Of course the loan quantum will not be as high as compared to a company that is more profitable, but getting one without being profitable has been proven to be possible. That being said, it is important to provide the bank with a strong set of financials in order to put yourself in a better position to secure facilities from the bank.
Lastly, the lowest available rates for loans in the market is currently (Apr 2019) in the region of 3.7% interest per annum. Do note that this is the simple interest and not the effective one.
My firm is not a loan broker, we are not licensed by MAS to provide loan facilities of any kind. This article is really to help you, the SME owner, to understand more about loans in a more straightforward manner. If you have any questions, please feel free to reach out to our firm and we would be glad to help you in any way that we can. We won’t be able to lend you the money but we can help put you in a strong position to secure those lendings that you might need.