There’s a very common saying among Chinese Business Towkays that if a business borrows money in Singapore, it means that the business is failing. Ji-Bai Jialat!!! In reality, many businesses that get approved for loans are actually the most profitable! Think about it—banks and lenders need to make money too. And how they can do it is by lending to businesses that are making enough profit to pay back the loan, plus interest, with profit left for themselves. Think of yourself as a lender, lending money to a friend. Wouldnt you want security that he/she may be able to repay you back in an allotted time?
Many of the fastest-growing businesses in the world use loans to improve their services, expand to new markets, negotiate better prices from their suppliers, and more. Companies like Alphabet, Tesla, and even Apple are using it. So why are the Towkays so against borrowing money? The simple answer is that most of them don’t understand loans and how they work. After all, how could they when it’s treated like such a shameful thing to talk about? It is mostly also in the Asian blood that loan is a sin!
Today, we are going to try to make things a little bit clearer by setting the record straight on 3 of the most common misconceptions about business loans.
Lower interest rates are always better
When looking at loan offers, most business owners will immediately ask for the interest rate and go for the lowest one because they think it costs the least. Although the interest rate is important, it only shows a very small part of the bigger picture. It’s important to take the total cost of the loan into account aside from the interest you will be paying.
Most lenders will charge at least a few other fees including a processing fee, service fee, early repayment fee, and more. These can add up quickly and, in some cases, cost more than the interest on your loan.
It is also important to consider the terms of the arrangement and potential costs linked to those. For example, if you need to take a longer loan term in order to get a lower interest rate, then you are probably going to pay a larger amount in the long run. Another example is if you are offered lower interest rates in exchange for listing your house as collateral—is the risk of losing your house worth the decrease in interest? These are all important factors to consider when assessing the real cost of a loan.
You need a business loan only for big expenses
While SME loans can definitely come in handy when purchasing new equipment, expansion into a new office, or buying other big-ticket items, it’s important to remember that they can also be used to solve smaller working capital cash flow gaps that end up taking a big toll on your business. Missed opportunities, operational nightmares, and unhappy customers are just some of the things you could prevent if you had extra cash in your back pocket.
With financing products like Revolving Credit Line, taking out a loan doesn’t have to be a special-occasion only type of thing. Once you’ve set it up, you can get cash as soon as you need it, at a price that you already know beforehand, and with loan terms that you customize for your needs—it’s like having a credit card with a limit that’s proportional to your business!
Banks are the only “legit” loan providers
Banks do offer a lot of “legit” products, including business term loans, but it’s no secret that banking credit processes are often tedious and slow unless you’re a bankable client. Most people put up with it because they want to borrow from a trustworthy company, but the good news is that traditional banks are not the only trustworthy lenders out there!
There are many reputable lenders in the market providing loans to help SMEs grow. Even if you end up borrowing from a bank in the end, it doesn’t hurt to understand what options are available to you in the first place—information is key when making a decision as big as choosing the right lending partner for your business! The most important is the communication between the lender and borrower.