Ravi Chandran
Business financing with unsecured debts involves a loan – you get the funds and promise to pay them back with interest. Unsecured debts refers to a loan where the lender does not take a specific form of security: for example, a credit card, some lines of credit, private borrowing from family or friends.
By: Hitesh Khan/
Secured debt refers to the lender taking some form of collateral in exchange for the loan: for example, title to the vehicle to secure a vehicle loan; mortgage on your private residence or business premises; title to equipment, signs or other assets that are financed.
What the lender is really concerned with is your ability to generate enough cash flow to make your payments, so make sure your presentation focuses on what is important to the lender – a solid plan and the experience and ability to repay.
It is your integrity and business experience that the lender really is relying upon when you are trying for business financing with unsecured debts.
When trying for business financing with debt with lenders, remember that your presentation and loan application must emphasize your character and credit-worthiness and business experience.
Personal Loans
Financing a business with personal loans is perhaps the most common form of unsecured debts – quite literally, you borrow the money personally and invest it in your business. It is typically used at start-up or early stages where the business itself has not established enough history or performance to be able to borrow in its own right.
Financing a business with SME loans
The SME loans are actually made and administered by banks and other lenders who will do so because the Singapore Government guarantees your loan if you are approved, so the lender has less risk than if they loaned directly to you.
Financing a business by leasing assets
Especially for start-ups, leasing can be an attractive and viable alternative when financing a business. Your equipment or vehicle vendor wants to sell something to you, so many have leasing programs to facilitate the sale. There are also leasing companies that operate independently of any manufacturer and will lease just about anything you might need. Many leases provide for an option to buy the asset outright for a fairly nominal amount at the end of the lease, which can be attractive if the asset still has useful life.
Leasing also has an advantage if your bank doesn’t want to provide all you financing needs – sometimes lenders have limits on how much business they can underwrite with a particular borrower. However, if you have a banking relationship, be sure to discuss potential leases with your banker before signing contracts. As with any other type of borrowing, you must know what you need and how you are going to repay.
Factoring is popular in some industries
An even more specialized source of financing a business that is operating and sells on credit is Factoring its accounts receivable. Basically, you sell your account receivable contract at a discount – you get less cash than if you waited to collect the full amount, but you have the cash now rather than later.
It is generally done in certain industries like the garment industry, which has a long cycle from production to retail to payment. It is quite expensive since your discount is paying for the cost of unsecured debts plus the costs of paperwork and servicing and a profit for the factor.
Home equity loan
Another source for financing a business, if you have a private property is a home equity loan. If you have built up equity in your home, a lender will loan you money and take back a mortgage on your home as security. But remember, if you don’t repay, you risk losing your home, so it is always important that you are confident that you are able to make all payments as scheduled.
Cash surrender value [CSV] of life insurance
You might have been paying for a life insurance policy that builds up a cash value in addition to the face value it would pay. Most insurance companies will loan you money with the CSV as security. This is a rather expensive method of financing a business and should probably be considered only for those near retirement and whose beneficiaries could operate with the reduced benefit they would receive if you die while the loan is outstanding.
Credit cards
Credit cards can also be a source for financing a business when you are first getting started. Generally expensive, if you use them, always make at least the minimum payment on time since problems here affect your credit rating faster than with almost any other type of unsecured debts.
When searching for secured or unsecured loans, it is best to speak to a loan specialist. There are many factors to consider when you have to haggle business loans, and loan specialists can always tweak terms to have an advantage.
They can set you up on a path that can get you the best personal loans in a quick and seamless manner. They can also arrange for the Best Home Equity Loans in Singapore as they have close links with the best lenders in town and can help you compare Singapore loans and settle for a package that best suits your needs.
Whether you are looking for a new home equity loan or to refinance, our loan specialists can help you get everything right from calculating mortgage repayment, comparing interest rates all through to securing the loan. And the good thing is that all their services are free of charge. So it’s all worth it to secure a loan through them.
