Starting a business in Singapore isn’t easy. Without capital, a venture, even with the best of concepts and ideas, might not take off. Even with all the alternative funding options and governmental grants and programmes that support startups being available, funding doesn’t come easy or cheap for most small businesses. Taking a business loan is an option. But for business loans, you’ll have to depend on the reputation of your business, its credit history, and cash flow. For businesses still in a nascent stage, some of these may not be viable.
A survey published by AsiaOne in 2017 had shown that almost 81% of small businesses in Singapore didn’t even qualify for traditional loans. Also, in another survey, 22% of the respondents comprising small business owners, had said that exorbitant rates of funding made business loans almost impossible to get. For short-term business expenses, personal loans can be an alternative.
Benefits of Personal Loans for Small Businesses
- Easy availability: Personal loans can be used for any purpose, usually. Hence, if you have a small cost to cover for your business, you can opt for a personal loan that offers a moderately low rate of interest.
- Quick approval: It may take 2 weeks or more for a business loan to get approved. In comparison, most personal loans are approved in a day or two, if the paperwork and supporting documents are in order. This could be especially helpful in covering for time-bound, emergency expenses.
- Unsecured: Most business loans require you to put up some sort of security. This may be easy for a business that owns a number of capital assets. But, businesses just starting out, may find it difficult. Personal loans, are generally unsecured loans. The basis for the loan would be the owner’s credit history and income. If the owner has a history of timely repayments of loans, securing a personal loan for business operations or expansion won’t be difficult.
- Lower interest as compared to alternative lending options: Online lenders and crowdsourcing funds often charge 15% to 20% interest. A personal loan from a bank, in comparison, would usually fall in the range of 7% to 10%. Lower interest payments mean that your overall debt burden would be much lower.
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Things to Remember When Applying for a Personal Loan for Business
- Have a stellar personal credit record: If you decide to get a personal loan for your business, you need to make sure that you have a good credit score and history. If you have overleveraged credit lines, you may not be able to get a new loan approved. Also, make sure that you have enough to cover for the new loan because if you default, you’ll be held responsible in your personal capacity. This certainly isn’t good for a business which has just started.
- Don’t hide details from the lender: Read the terms and conditions of your loan carefully because some lenders may have objections to use of personal loans for commercial purposes or have separate requirements. For example, if you tell the lender that you would use your loan for your business, they may ask you to pledge a collateral or get a backer. While this might complicate matters initially, you would be in the clear if something untoward happened to your business in the future.
- Check your borrowing limit: Most banks would lend you 4 times you monthly income if your annual income is at least S$30,000 and up to 10 times your monthly income if you annual income is more than S$120,000. But, general trends suggest that starting a small business may cost you S$300,000 to S$500,000. This means, a personal loan secured by you would be inadequate. You may, however, use it as one of the funding options. Look for other sources of funding, too.
Taking a personal loan for starting or running a business may not be the smartest option always. But, when you have no other option or need a small amount of money which can be repaid quickly, a personal loan can certainly become a good option.