Loans work best when they meet the unique requirements of your business, its cash flow patterns, expenditure, revenue. Every business has its own specific needs, challenges and avenues for growth. Even though the ultimate goal is to make a profit, there isn’t a one-size-fits-all approach to funding. What might work well for a construction business may not be suitable for a café.
Read more: A Guide to Lendingpot Startup Business Loan Marketplace
Read on as we break down how to pick the right business loan for your industry. We’ll explore common loan models and recommend options for some of the major industries in the island state.
The first question you should ask yourself is what for do you need financing? This is important because different loans are suited to different purposes. Find out how much you need, how much you can afford in monthly payments. Will this be a one-off? Or, due to the nature of your business, is it necessary to have immediate access to funds on short notice?
If you’re unsure which business loan suits your needs, those questions can guide your decision. For a deeper understanding, explore our article on the 4 Best Business Loans to Start a Business.
The types of loan products from both banks and private lenders are very varied, and they’re designed to meet different business requirements. Here are some of the common loan types you can expect to find:
Bridging Loans: Small, unsecured loans meant to tide a business over until more substantial financing becomes available, or until dues from clients come in.
Unsecured Term Loans: A versatile small business loan that does not require collateral. Loan tenor, quantum and monthly repayments are fixed.
Secured Term Loans: A larger loan (amounts can go into the hundreds of thousands, and even millions) secured by company or personal assets, most commonly properties. Secured loan quantums, repayments and tenors are fixed.
Invoice Financing: Businesses can sell their unpaid customer invoices to a finance company and get 70% to 90% of the money right away, instead of waiting for their customers to pay.
Line of Credit: A business line of credit allows companies to take out loans at any time, as long as it falls within their credit limit (this is called a drawdown). Repayments begin the month a drawdown and usually last up to a year or less. Drawdowns can be made multiple times as long as the credit limit is not exceeded.
Equipment Loan: Some lenders offer business loans specifically meant for the purchase of machinery and equipment, often using the hire purchase model.
Revenue Based Financing: An affordable and flexible loan or capital raising model whereby repayments are made to financing providers as a percentage of revenue, reducing the financial burden of businesses.
Working Capital Loan: A working capital loan is a short-term loan that helps a business pay for its daily expenses when it doesn’t have enough cash.
Startup Loans: Loans that are specifically designed for startup entrepreneurs to get their ventures off the ground.
Let’s look at some examples of how these different loan models can come in useful for your particular field of business:
Suitable loans: Revolving line of credit, bridging loan or unsecured business term loans
Retail and F&B businesses depend heavily on being well-stocked and ready to serve customers. This means having quick access to finances when there’s an unprecedented surge in demand. In quieter months, there may be a need to cover operational costs until things improve.
Suitable loans: Secured or unsecured term loans or working capital loans
Property developers depend on launching new projects in order to continue generating revenue. They need a considerable amount of capital to cover the costs of manpower, equipment, materials and certification. Cash flow can be inconsistent, depending on their sales performance, so having a fixed lump sum of financing keeps the momentum going.
Suitable loans: Invoice financing and bridging loans.
Manufacturers depend on the cyclical nature of the industry for their income, and this often results in delays of invoices being fulfilled. These delays can often put a strain on operational costs, including payrolls, raw material purchasing, production costs and equipment maintenance.
Suitable loans: Startup loans and unsecured term loans.
Tech startups may not require much costs in terms of raw materials. Their costs are more towards equipment and human resources. Tech startups can take time to turn in a revenue, and will require financial support until they build a stable and sustainable income.
Read more: A Beginner's Guide to Startup Business Loans in Singapore
Once you’ve identified the best type of loan for your business needs or objectives, the next step is to choose a loan product. We highly recommend comparing similar loans from multiple lenders to gain favourable rates, tenors, affordable instalments, you name it.
Need some help? Register with Lendingpot today to gain access to more than 50 business lending partners, including banks, private moneylenders, and P2P lenders. Submit your application (for free) and you’ll begin receiving loan offers from our partners in as little as 48 hours which you can compare and contrast to find the best deal. Got questions? Reach us here.
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.
