Loan between private individuals is a phenomenon that is made use of daily, in the context of friends, affective or family relationships.
In principle, the loan between private individuals without guarantees, or with guarantees, the non-interest-bearing or interest-bearing loan, is a wholly lawful and technically subsumable case in the loan agreement scheme. In the 21st century, moreover, the loan between private individuals (which takes the connotations of loan-partners if the borrower is a company and the licensed money lender is a partner) has taken on new life and dimension, giving rise to real collective collections, better known as money lending in Singapore.
As a small business owner looking for funds to help grow your business, you may be considering taking out a business line of credit from a bank. But getting a business line of credit is often not as easy as it may seem. Although banks often advertise them, getting one can feel like a challenge if you’re not prepared. If you’re considering applying for a business line of credit (sometimes called a LOC [line of credit]) from a licensed money lender in Singapore, follow these tips:
- Do your homework
Although there may be dozens of banks in your city, not all of them are small business-friendly. Some do not offer business loans, and those that do may have strict qualification requirements. Get recommendations from other small businesses, see who’s using them, and make sure you have your documentation to match their eligibility criteria.
Avoid spending too much money on application fees and having your credit history scrutinized by a dozen licensed money lenders in Singapore by doing your homework and narrowing down your options to the two or three banks that seem most likely to approve your application.
- Build a good credit history from the start
When you’re starting a new business, being cash flow positive is crucial. Even though your business may already be generating revenue, you must pay your bills on time, take advantage of credit cards for operating expenses, and have at least a year of established credit history. Good credit history can go a long way in helping you get approved for a line of credit.
- Beware of factoring companies
Factoring companies generally don’t consider credit history and provide lines of credit based solely on your cash flow. These are the companies that will offer you a loan or line of credit based on your cash receipts. In effect, you will allocate a certain percentage of your cash receipts to the factoring company. This means that payments will flow through the factoring company until the loan is paid off.
Getting credit from factoring can also carry exorbitant interest rates. While you’re usually quoted almost reasonable-sounding monthly rates, the effective annual percentage rate can be as high as 300 percent, so be careful.
- Have your documentation in order
Some licensed money lenders in Singapore will require a copy of your business plan as well as business projections. As with most applications, it’s always best to have everything prepared and organized in advance. The documentation requirements of a business LOC are comprehensive and typically include:
- Business and personal tax returns for at least the last two years
- Year-to-date financial statements for the current year
- Bank statements for businesses covering six to twenty-four months
- Business license (if required)
- Prepare to start small
Applying for a business line of credit is not the easiest task, especially if you have never applied for business credit. For that reason, be prepared to accept a smaller line of credit than you may be looking for. Even a line of credit of a few thousand dollars can offer you the opportunity to build a larger line in the future.
Make sure you always make your payments on time. It may also be a good idea to pay the line in full from time to time. This can show your licensed money lender in Singapore that you can successfully manage your debt. And as you do, your credit line can be increased. Also, it may be easier to get a line of credit from a new lender once you establish credit with your current lender.
Benefits and limitations of getting a loan from a licensed money lender
The interest rate that the lender receives is on average more favorable than that proposed by traditional financial intermediaries; at the same time, those who go to money lenders to obtain a loan pay a slightly higher interest rate than medium-term loans for the purchase of machinery, plants, etc., but considerably lower than the rates of normal consumer credit: this it is possible thanks to the reduction to the minimum terms of the intermediation costs, as the lender and the applicant (the contractor of the loan, i.e. the debtor) are put in a direct relationship and the companies or intermediaries, operating on the web with highly automated services, have very low operating costs.
However, this type of loan does not provide guarantees to protect the lender against the risk of the debtor’s bankruptcy.