Some see borrowing as a necessary evil in a business, however we believe that’s a profit-limiting mentality. When used intelligently, a well timed business loan can create tremendous growth for your operation.
Now of course we must say that not every reason to get a business loan is a good one — the trick is to know when and how to do it in a way that will help your business make its next big leap. If you’re wondering when is the right time to make that leap, read on for the 5 smartest times to get a business loan in Singapore.
Here’s What We’re Covering:
1. To Build a Reputation of Good Credit
If you’re just starting out as a business, it might be hard to think 5 years into the future. But when that time eventually comes, you’ll be wanting to take out reasonably large loans to stimulate growth. However if your business doesn’t have a good credit rating in Singapore, you might struggle to get those loans from local financial institutions.
That’s why we recommend taking out small and frequent business loans when you’re starting out. The benefits are twofold — it gives you a bit of financial flexibility to invest in things like inventory when you’re just starting, and it also helps you easily create a reputation for good credit with lenders.
Make sure these loans are small and most importantly financially manageable, and it will pay dividends for your business in the future when it’s time to really grow.
2. To Buy Business Equipment
Every business needs to spend money on things to operate even at a very basic level. Computers, printers, and office chairs are simple examples. You might even need large things like forklifts or trucks for your warehouse. Either way, business equipment is a crucial investment in your day to day operations.
An equipment loan makes even more sense when you take into account that the equipment you buy can usually be used as the collateral for that loan. This means much less stress in the loan application process as the lender won’t be so worried about delving deep into your credit history.
We should note, and you’re probably thinking about it now, an equipment loan shouldn’t be about luxury stuff. You don’t need a Mercedes when a Toyota will do the job. Remember, an equipment loan is an investment in your business, not an excuse for lavish purposes. Stay lean and hungry, and keep your eyes on the prize.
3. To Buy Business Inventory
If you sell goods, inventory is an expense you can’t escape, and unfortunately, you might not always be in a financial position to afford it. To make matters more frustrating, you can’t make a return on your investment until after you’ve sold said inventory.
Many businesses will have seasonal fluctuations, for example you might have a holiday season where business booms, and you make most of your profit for the year. But if that holiday season is preceded by a slow season, you may not have enough cash on hand to purchase the inventory to keep up with upcoming demand. This means you’ll need a loan.
To make sure you are making the right financial move, we recommend you take a look at the sales trends for each season as far back as your records show. Take a look at how much debt you’d be taking on, and compare that next to your projected sales to make sure you’re getting a good return on your investment.
Do note however that sales trends will vary, so be conservative for your sales projections to help ensure your books stay in the black.
4. You Need to Hire Staff
As the owner of an SME, you’ll also be the marketer, the book keeper, and receptionist. But there comes a time that those secondary responsibilities will limit your ability to be productive (and therefore profitable) in the role that you have expertise in.
We know that it can sometimes be hard to delegate these tasks to others, as after all, you have high standards for your operation. So instead, try and look at hiring staff as the greatest step forward your business has ever taken in terms of growth. This is an exciting time, so embrace it.
A loan to cover your new employee’s wages for a few months will get you up and running with your expanded team. Sit down with your moneylender or financial institution to work out how much value your new employee/s will bring, and how that will make the loan pay for itself.
5. You Need More Space
So perhaps by now you’ve hired multiple new staff members. Things are growing at a great pace, and things are looking up. However, this growth has created a problem that has quickly snuck up on you — you are literally overflowing out your doors! If your kitchen is now a storage room and you share your own cubicle with two other people, it’s probably time to look for larger premises.
To purchase or even rent a larger physical space for your business is a significant expense though, so even if business is booming, you might not have the funds to make it happen.
To figure out if this is the right time to move to a larger location, make a conservative estimation as to whether your new projected revenue from the larger space could cover the loan. The idea of moving up to a larger, more modern space may be very appealing, but make sure you’ll remain profitable first.
It’s fair to say that the reasons we’ve listed here aren’t the only reasons to get a business loan, in fact there are many other smart reasons to take out a loan. However, one common theme you will see in all 5 of our reasons to get a business loan is that they are all investments in the profitability of your business.
In general, if you can afford to pay back a loan that will ultimately improve your bottom line, you should definitely go for it. However we encourage you to take a long, hard, and objective look at the reasons for your borrowing. If you are borrowing for the nice-to-haves instead of the must-haves, you should definitely reconsider your motivation.
Any loan is a calculated risk, so take your time to go over your books to make sure you’ll get a return on investment from your business loan.