Many people generally associate loans with cold hard cash placed in your hands or in your bank account, but amazingly owning a credit card can deliver the same result with better economics (less the psychological thrill of holding physical cash). This applies similarly to our topic of today: the business credit card. Here we are going to tell you that you can get an interest free working capital loan for your business that is revolving perpetually and why this is something you should always have alongside your SME loan.
Here’s a quick summary:
If you are a user of a personal credit card, you will find the concepts of a business card relatively easy as its functionalities are the same. Here’s a quick breakdown on how you can use a business credit card to get interest free working capital:
The first step to your business card is credit limit determination. This works the same as your personal credit assessment only that it has a little more business data. A typical assessment will require your financial statements, bank statements, credit bureau report of your directors and shareholders and their notice of assessments. Credit limits are typically 3x of your monthly cashflow and can go up to S$500,000.
Once you got your credit limit determined, you are now able spend off the credit of the card issuer. However, it is to note that this only applies to “cardable” expenses. These are usually for online spends such as digital marketing, travel bookings, transportation and even some phone and utility payments. Monthly expenses as such can sometimes reach up to $100,000 for some businesses.
Here’s the most important part. Understanding your statement and due dates is key to help you time your expenses and leverage on interest-free working capital for your businesses. See below diagram for better illustration.
From the table you can see that there will always be at least S$45,000 of outstanding balance with almost 20 days of S$90,000 balances. This is entirely interest free and can be revolved every month. Essentially you just obtained at least S$45,000 of free operational cash flow.
Now you must be wondering, someone must be paying for this if not me. And that is a fair question to be asking. The real answer is that the merchant that you are using the card on via the card is paying for it through the merchant discount rate (MDR). This means that the card issuer collects a fee of about 2% from the merchant for facilitating the transaction. And that is what pays for your cost-free working capital.
One way to manage non-cardable expenses is to look at service providers that can help convert a card spend to a non-card one (i.e. a wire transfer). This typically comes with a processing fee of as low as 1.3%. This means that you can use your credit limit obtained from your card for anything (even when they are not cardable). This includes paying for your supplies which you originally pay via wire transfer. The processing fee that you pay is therefore interest cost for a 55 days credit. This average to about 8.6% p.a
The two biggest players in this space are Cardup and iPayMy. Below are the pricing:
Cards are a must get for all businesses simply because, even if you don’t bother about the credit, you get rewards. Most cards offer you rewards on your spends, remember they earn about 2% in MDR from the merchant and will be more than happy to give rebates to you. In fact if you are simply paying for something that is “cardable” by cash, you are leaving money on the table.
If this is your first time applying or considering, try a credit with some of our Lendingpot partners, Youbiz, Volopay or Aspire for exclusive perks.
Apply here:
If you want to find out more to the secrets of cards, do feel free to book an appointment with us and we will be more than happy to share our thoughts with you.
Leading digital loan marketplace Lendingpot connects SMEs to its network of 45 lenders comprising relationship managers from banks, financial institutions, and private and peer-to-peer lenders in Singapore for free. It aims to help SMEs overcome the information asymmetry problem and lack of transparency prevalent in the SME financing sector by offering SMEs financing options such as business term loans, property loans, revenue-based financing, credit lines, working capital loans, bridging loans, invoice financing, and more.
Benjamin heads up Lendingpot with a background in all things SME. He was previously a commercial banker at Citi with experience in Relationship management, Credit Risk, Trade Operations and Corporate FX sales; and understands the difficulties SMEs face in this opaque world of SME financing.
