All too often, being human we jump into things too quickly and without thinking through carefully the important factors involved. It is prudent if not vital to consider the pertinent issues first from all angles before making a final decision on something or, in not so many words, taking the plunge. And this adage also applies very much so if you should find yourself one day thinking of taking up a loan.

From time to time we may find our personal finances or business’s financials running low, or a situation arises where much needed or necessary funds are required to be injected into the coffers to free up cash-flow or fund a project or even to expand the business. If you are considering taking up a loan as the solution, it is advisable to think it through very carefully especially the important things or issues involved that could affect your financial or business future. I believe whether you are a student, a blue collared worker or a white collared office staffer, a small-time businessman or even a wealthy business magnate, the above golden rule applies. There are many points to ponder including the pros and cons of taking a loan and being tied down to a long-term repayment schedule or being stressed up with trying to make large amounts of loan repayment instalments each month among other things. Whatever be the case, putting in much productive thought and making realistic plans on putting to good use the loan money while also having backup plans for any contingencies that may arise will always prove to be wise and fruitful. So here are the following issues I believe are essential things to consider before taking up a loan.

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“Do I need a loan?”

1. Firstly and very importantly you should ask yourself, “Do I need the loan?”

If it’s a loan for your personal use or a house loan or even a car loan then figuring out whether you need the loan shouldn’t be a difficult task. But if it is for business purposes then this would require deeper thought and analysis. You should consider what the main purpose of the loan is. Is it because your business needs some extra cash to cover a cash-flow gap because a significant part of the money required to pay your workers’ salaries was used to buy some much-needed equipment. Or because the funds were channelled into buying some extra inventory due to bustling sales and this has become a problem because payments from clients are slow to come in due to you giving 90 days terms.

Perhaps maybe also, the company wants to expand with the hope of making more profits as well as becoming more well known and respected as a major player in the business line that it is in or because it wants to make a foray into some new field of business. Other reasons for taking up a loan include the firm wanting to jumpstart the business due to it starting to stagnate or simply because funds are needed to start-up the business that might have just been incorporated but lacking seed money to pay for the necessities needed for it to start operating. You should also ponder on and ask yourself whether the loan will really benefit your business, for example, “Will the money be put to good use?” As this will affect your company’s future finances especially if the money is not properly utilized or that it is left sitting in the company’s bank account while having at the same time to make monthly repayments with high interest for the loan.

2. Do you or your company qualify for a loan?

I believe that after much thought and analysis have been put into deciding whether your business or you really need a loan, and the decision is yes, then the next step is to find out if your firm or you qualify for one. Knowing at this point, roughly what types of loans are available and having a fundamental understanding of the basic requirements needed to be eligible for one is advantageous. For most loans, particularly in the case of the business loan, whether from a bank or a licensed money lender or SPRING Singapore or a P2P platform or others, the principal or principals of the business or company have to be 18 years old or older. The principal(s) also have to be citizens of Singapore or be at least a Singaporean permanent resident or more importantly the firm is incorporated in Singapore with at least 30% Singaporean shareholding. A company should provide the lender with details of its financial records of anything from 1 year to 3 years usually depending on what type of loan and from which type of lender the loan is from.

In the case of a personal loan, the borrower must provide proof that he is getting regular income with bank statements shown to support the facts. In most cases the individual or principal or even a guarantor, if one is needed, should have a good credit score except interestingly in the case of a P2P crowdfunding loan. P2P platforms are increasingly attracting many borrowers as well as investors because of their flexibility and less stringent requirements for loan eligibility. However at the same time, making thorough checks, both regarding black and white background scrutiny and physical investigations (e.g. visiting the site of the business) of the borrower’s business premises and assets etc. P2P platforms fill in the gaps so to speak where the other traditional lenders do not cover, i.e. they provide an alternative source of funds for borrowers who would under normal circumstance not qualify for a loan from banks and licensed money lenders for various reasons.
From my understanding when it comes to start-up loans you should consider whether you the borrower can present a financially sound business plan and prove that potentially high turnovers can be achieved, with good projected profits, are viable if not definite by the business. It is good to research as many types of loans from the various varieties of lenders available in the market and find the ones that you qualify for or at least be eligible to apply for a loan. And if you do deeper research or read more articles about bank loans in Singapore, you will understand primarily the processes of loan evaluation and gauge on your own whether your application for a loan stands a chance of being approved.

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“Can I pay back the loan and according to schedule?”

3. “Can I pay back the loan and according to schedule?”

The next thing to consider if you believe that your company or you can qualify for a loan is whether the loan can be paid back and that the repayments will be on time. You have to be realistic if not extra prudent when weighing your company’s or your personal financial state, assets available (like properties or vehicles owned), economic and market conditions, and sources of funds for loan repayment, etc., in your evaluation process of paying back the loan. You have to calculate your finances thoroughly taking into account contingencies and scenarios which could leave you without enough funds to make the repayments for the loan for a certain period while having to finance operations of your business at the same time. One must have a measure of confidence of the degree of certainty or allowance that one can make the monthly loan repayments consistently.

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“A realistic and workable plan…”

4. You should have a realistic and workable plan on how to utilize the loan money for success

After ascertaining that you can pay the monthly instalments for the loan (hopefully with confidence), I believe you should plan realistically on how to make full use of the loan money for maximum success of the project or business. Knowing how much to borrow with considerations for having extras for any eventualities is very prudent if not exhibiting business and financial wisdom. The plan should not only assume that you have the ability to pay back the loan if it brings success to your business, but the plan must also incorporate the possibility of failure in your venture and how to pay back the loan in that circumstance. The plan should also consider various interest rates of multiple lenders, fees associated with the loan, the term of the loan, your current financial situation, assets being held, and even down-payment while putting much emphasis on the amount of the loan needed or applied for. Doing a cash flow analysis can help put things further into perspective or give you a better idea of your cash situation at various points of time and how workable your plan is. In the case of a personal loan, you should here again have a reliable source of income or have assets that can act as collateral in a secured loan situation.

5. “What are the risks involved?”

I believe strongly also that one has to consider the possible fallout that might come in taking on or defaulting on a loan. Loans that turn bad can disrupt your firm’s or your own financial rating or credit score. When you fail to pay instalments on time or default on repayments or accumulate extra debt, you run a very great risk of having your credit score or rating downgraded. In fact, you might even be blacklisted as banks and licensed money lenders will usually report your loan status to agencies tabulating credit reports and this could result in not only affecting you financially and business wise but could also affect your other types of future loans such as personal loans for homes and cars, etc.

6. Considering the loan type and lender

So with the above steps already being executed then the next step in the process of consideration is to choose the right loan from the right type of lender right down to which bank or licensed money lender or P2P Platform. With all the above information gathered and analyzed as well as produce, you should be able to choose which loan type and lender with greater confidence and ease.

7. Some miscellaneous and interesting aspects about loans to consider

Notably, one does not need a perfect credit score to get a loan nowadays. For example, as mentioned earlier, P2P crowdfunding platforms are a lot more flexible and more open when it comes to determining the eligibility of a loan application. Although relatively new to the market, they have had an enormous impact on the financial scene in Singapore as they have created many opportunities for small companies and individuals to obtain loans that have helped to achieve their dreams and goals of success. Therefore banks and licensed money lenders are not the only sources of loans anymore, even more so with the advent of a P2P platform which offers loans especially to many small timers. Lastly, one must be aware of the aspect that when it comes to determining what loan to take and from which lender to choose from, the focus should not be on the interest rates but rather on the amount and tenure of the loan, monthly installments, processing fees, penalties on delayed and missed payments, hidden charges, prepayment charges, and loan extension plan etc.

So all the above expounds on the aspects, points, and issues that I believe you should consider when it comes to determining, deciding, choosing, and finally applying for a loan that could change your life or at least advance your business. But at the same time, you have also been shown the negative side of taking up loans that could result in your venture, project, or even business failing. In fact, a loan that turns bad could lead you to financial ruin or at least spoil your future chances of getting further loans because your credit rating has been so severely undermined. Therefore it’s important that you do your due diligence when it comes to taking up a loan. It could make or break you.

Funding Societies has a Capital Market Services License issued by the Monetary Authority of Singapore. Capital Markets Services License No: CMS100572-1 issued by Monetary Authority of Singapore (2016)

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