How To Use Debt.

First you must understand, debt can be your enemy, but also it can be your lover. It is often perceived negatively as evil or crippling.

It can be an indication of increased risk, and if you are unable to pay your debt repayments, it could have dire consequences for your business. 

​

There is however another side to debt.  All big players and corporations, if you know, have some level of debt. It is to earn a return on their investment. Almost every successful entrepreneur that you have heard of will go through some period of time, even bankruptcy.

For SME, debt can provide many great benefits as long as it is financially managed responsibly. 

​

Go into debt if you must – remember that any debt that has a positive ROI is good. 

​

For entrepreneurs who just started their business with no prior track record, banks will reject even though you have excellent credit records, as they must bear the risk of your company’s survival.

​

Throughout the world, each bank in their respective countries have their own niche that they go after, you just have to understand how banks work. In Singapore, it works the same when acquiring your business loan. Sorry to say that you can’t type in Google to see which bank works with your kind of startups or type of industries.  

​

Another key importance is leverage. 

Would you borrow money at a 20% interest if you have a deal that will make you a 50% return?

Or would you cut off all your credit cards when you need credit to clinch a business deal?

If you have a $100,000 sitting in the bank account, would you go get a loan from the bank for $100,000? For most people, most likely they won’t. But for an entrepreneur, you have to see debt and leverage differently - If you have $100,000 liquid, you should rather leverage somewhere that will generate in more revenue, and then leverage from the banks at a low-interest rate for debt, rather than bringing inventories into the business or pushing it through by advertising.

​

When you need money, do remember the rate is never the issue, the payment is not the issue, but the issue is who can give you the money NOW!

​

A business owner may have a lot of money tied up, it could be due to inventories, big account receivable that businesses sign for a 3 to 6 months repayment period. And you can borrow against those, whereby it gives you short term access to capital so that you can inject cash flow to your business.

​

Just be aware whenever you submit an application through to the lenders, there will be recorded. Usually, 10% of the credit score is dictated by enquires. If you have too many in the last 6 months period, lenders will look at you as being too desperate. Nowadays it is indeed easy just to submit a loan application online to many lenders and see who will approve the loan, but many have already realized that the chances and possibility of getting a loan approved through massive applications do not work as expected.

 

Presenting the loan you need to the lenders must be done well, rather than say I need this for my working capital which is vague, is extremely important as well. That is why we have so many presentations during our school days. Everything must be carefully crafted and packaged to perfection.

​

Just remember, when debt is used correctly, it will leverage you into more opportunity