Starting your own business will take you through some exciting milestones: your first customer, your first paid employee and even your first physical office or shop space. As your business grows, you may find yourself making plans to expand your inventory, launch new products or even take on regional expansion.
But business growth often comes with costs, and your business initial capital can only get you so far. There will most likely be a time where you will need to consider business financing options.
A common mistake made by Singapore SMEs is that they only look for business loan financing when their business is not doing well. As a result, they are only able to use positive leverage – their track record of success – to convince financial institutions to approve their business proposals or their bank business loan applications. This is what puts the business in jeopardy, leaving them with weaker negotiating power and lesser options. Thus, it is better to plan ahead and seek business loan financing when your business is doing well.
What Is Business Financing?
Every business needs money to thrive, and that is where business loan financing comes in. It involves securing capital from third-party sources to fund a new or existing company. It is useful for seasonal gaps in sales, unanticipated downturns and the challenges of growth.
6 Best Business Financing Options
|
Type |
Best For |
Pros |
|
Bank loans |
Established companies |
Bigger loan amounts |
|
Loans from private lenders |
Business not qualifying for conventional loans |
Convenient, fast funds, easier to qualify than banks |
|
Business line of credit |
Proven track record |
Flexible financing, revolving access |
|
Invoice Financing |
Business with long payment terms |
Access to funds without waiting for customer’s payment |
|
Crowdfunding |
New ventures, one-time funding |
Builds brand buzz |
|
Government grants |
All types of businesses |
No repayment for most grants |
1) Bank loans
Best for: Businesses with established revenue
A private bank loan involves borrowing money from a bank to invest in your business. The average business loan interest rate starts from 7% and be alert to all the hidden fees in your loan agreement.
2) Loans from private lenders
Best for: Businesses that don’t qualify for typical bank loans
Private lenders such as Poss Capital or Validus offer convenience by making the process of applying and receiving loans fully online. This also means that your approval takes a short time, ideal for businesses who require funds urgently.
3) Business line of credit
Best for: Businesses with proven track record
A business line of credit works like a credit card, letting you borrow up to a limit and you only pay interest on funds you draw. Once payment is made, you can continue to draw funds as needed, as long as you pay on time and do not exceed your credit limit.
This can help finance short-term needs such as payroll, purchasing inventory or managing cash flow.
4) Invoice Financing
Best for: Businesses whose customers require long payment terms
Invoice financing is a way for businesses to borrow money against the amounts due from customers. It helps SMEs improve cash flow and pay their employees or suppliers on time. Businesses typically pay a percentage of the invoice amount to the lender as a fee for borrowing money.
5) Crowdfunding
Best for: New ventures or one-time funding
Crowdfunding is a popular way to raise money for startup ventures. It involves soliciting lots of smaller donations from the public, rather than a large sum of money from one or a few contributors.
Crowdfunding sites such as Kickstarter are another way for small businesses to raise money. In exchange, gifts or perks are offered to your donors. It can also be an effective way to gauge interest in your product or service before fully launching your small business.
6) Government Business Grants
Best for: All types of businesses
Business grants are a form of financial support provided by the government to offer a helping hand to SMEs in various sectors. They are different from business loans since these funds are non-repayable. However, business grants in Singapore can have specific requirements and criteria to fulfill before being awarded. Learn more about SME grants here.
Here’s why planning your business financing is important:
1. Building a good reputation with lenders
A relationship with lenders ensures that the doors to business success is open. These institutions will not undermine your authority, unlike in situations where capital is exchanged for equity in the company. They simply provide financial support through small business loans, and do not interfere with any decision-making regarding business development or your business in general.
2. Unlocking growth opportunities
Business loan financing is like your strategic partner. It provides your small business the resources to achieve specific goals such as:
-
- Achieving increased profitability
-
- Increased headcount
-
- Business expansion
-
- Upgrading of physical assets
-
- Expanding into new markets
The overall benefit to your SME business health is often significant, despite the interest rate.
How to secure funding?
The general process of securing business financing is like this:
Improve your credit score
A good credit score indicates a strong likelihood of you repaying your loan, thus establishing a strong credit history for your business is important.
Have a business plan
Planning well ahead of your anticipated needs with a sound financial plan and realistic projections is a good way to lower interest rates and enhance your credit score.
Decide how much you want to borrow
Use your business judgement and data to help decide how much debt is comfortable for your business to take on.
Prepare your pitch
Depending on which business financing option you choose, there may be an application and vetting process. Put together your business plan, financial statements and other relevant information and show why your business is deserving of the funds you’re requesting.
Compare different business financing options
Shop around and get quotes from a variety of sources. When you know your options, you can also use that information to negotiate better terms or rates.
Secure financing for your business
Knowing your industry and market situation is a basic element in running a business. The planning should include anticipating your need for fresh capital and building an emergency fund for unanticipated needs.
If you are well-prepared or work with financing partners who understand your business, who can make financing decisions quickly and can adjust repayment terms to your requirements, you will find it much easier to obtain funds and grow your business.
Seize Growth Opportunities With Poss Capital
Plan ahead and let us help your business achieve goals that matter. Apply for business loan financing from Poss with simple borrowing requirements and transparent fees and focus on effectively growing your business without any worries. Contact us today if you require additional business loan financing to achieve your business goals.
