Small Business Loan: Why is It Important for Your Business?

Working capital and cash flow are the lifelines of your small business. Unfortunately, you can’t have enough of them all the time. Operational factors can disrupt your cash flow, while significant projects can reduce your working capital.

However, losing some working capital and cash flow doesn’t mean your business fails. But you can ensure that they always remain adequate. That’s the purpose of small business loans.

Getting a loan from a reputable money lender company in Singapore will help your business build up credit. It will be beneficial for your future financial endeavours. So, let’s delve deeper into the importance of a loan for your small business.

couple planning a business loan

A Loan Can Reduce Business Risks

Aon Inpoint’s 2019 SME Insurance Survey has revealed the top 10 risks small businesses in Singapore face. They were:

  • Failure to innovate or meet customers’ needs
  • Reputational or brand damage
  • Increasing competition
  • Economic downturns
  • Cash flow/liquidity risk
  • Big project failure
  • Workforce shortage
  • Outsourcing
  • Compliance
  • Loss of intellectual property or data

If your small business faces these risks, a small business loan can help you mitigate them. You can use the funds to explore growth opportunities and bolster your brand image. As a result, you can reach or exceed the level of your competitors.

Borrowing money can also help you stay afloat during an economic crisis, like a pandemic. You would’ve been among the 73,000 companies that closed down in Singapore between March 2020 and September 2021 if you didn’t get a loan. Of course, other factors played a role in the closing of those firms. But a business loan would’ve lessened the damage nonetheless.

Reaching the Business’s Goals

You can take out a loan to accomplish a particular goal. For instance, a short-term business loan can help you finance a close target. Suppose you want to develop a website other than your shop in an e-commerce platform. You can take out a working capital loan to pay for a web developer and domain.

There are also long-term business loans, which you may use to finance both everyday needs and a long-term goal. Such a type of loan is called a credit line. Its terms can be as short as 90 days to as long as several years. You may settle only the interest of the cash you’ve spent instead of paying the entire amount. In other words, a credit line is a steady stream of available cash with flexible repayment terms.

Building Up Business Credit

Like individuals, businesses can also benefit from establishing good credit. Your small business’s good credit can help it qualify for higher loan amounts with lower interest rates. In addition, it can pay less business insurance and receive more favourable agreements with its suppliers.

If your business doesn’t have credit, you will be forced to use your personal credit to take out a business loan. This approach may work, but it will put your assets at risk if you default on the loan. Moreover, using your credit for business purposes can decrease your chances of qualifying for a personal loan. After all, personal loans aren’t supposed to be used for commercial purposes. For instance, if you got an auto loan to buy a company car, the vehicle’s insurance won’t cover damages if you get into an accident. That’s because you used the vehicle for a purpose it is not meant to serve.

On the other hand, if you took out a commercial auto loan, the car’s insurance will cover damages if you get into an accident in the middle of a business operation. And if you can’t repay the loan, your company, not you, will lose the car.

Investing in Better Equipment

Not having the cash to pay for advanced equipment doesn’t mean you’re not ready to innovate. Buying new equipment is one of the most common purposes of a business loan. Hence, a lender will not doubt your business’s preparedness for innovation if you ask for funding. If you prove your business’s ability to repay the loan, your chances of receiving the funds will be high.

To measure your readiness for innovation, determine if there’s a demand for it. If your customers have been looking for graphic tees instead of silk-screen printed T-shirts, buying equipment for digital T-shirt printing will allow you to satisfy that demand. You may perform a sales forecast for your graphic tees to show that a piece of new equipment will generate profits and can thereby repay the loan.

Debts don’t deserve a negative reputation. They help individuals and businesses obtain their needs while cash isn’t available yet. The only time to stay away from debt is when you don’t have the means to repay it. Otherwise, you’re setting yourself up for good credit.

Share the news: