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Loans For Starting A Business

These days, many folks wish to start a small business in Singapore. However, owing and running a business warrants considerable amount of investment no matter whether you wish to start a bakery or a car dealership. If you have enough money to set up a venture, then it is fine. Unluckily, many people do not have sufficient money to start their venture. In such a situation, you have the option to drop the idea of starting a venture or seek a loan. Some folks favor the idea of taking a loan for starting any business, whereas others oppose the decision. Hence, assessing the pros and cons of loans for starting a business becomes necessary to come to a better decision.

Taking a loan to start a business: benefit or a burden

Whether you are starting a manufacturing venture or a trading venture, you will need to purchase raw materials for manufacturing or finished products for trading. In both cases, you will need money for making purchases. You have the option to seek credit from suppliers, but buying anything on credit will increase your purchase bills. For example, if you buy a particular item for 100 dollars on credit, you can avail the same for 90 to 95 dollars if you buy that item for cash.

Thus, you will be able to save 5 to 10 percent on your purchase. This could be a big saving which can transform into lower cost of production or low purchase bills. When your cost of production or cost of purchase is low, you can sell your items at a competitive price compared to your competitors. As a consequence, you will be able to make more sales and ensure better profitability. However, you will need to calculate the cost benefit-ratio of taking any loan.

For example, if you take a loan that comes with 2 percent interest per month, you can earn 3 to 7 percent after paying the interest amount in the above example. However, if the rate of interest on borrowed funds is more than 5 percent, you will only end up diminishing your profits or incur huge losses by using loans. So make a prudent decision, and choose an ideal loan that gives you better profitability.

Moreover, you can use borrowed funds to extend credit to your clients and customers. The modern business environment is highly competitive; it is important to employ business strategies that will help you to gain more clients. You can offer credit and installment facility to attract more clients. Credit and easy installment payment facility attracts many buyers who are unable to make outright payment. You can tap this human behavior and win more clients by using loans for financing your customers.

However, it is necessary to ensure that your customers will pay the money on time. If your customers go bankrupt or fail to pay the dues, you may incur huge losses by extending credit. So make sure you only finance good customers after assessing their financial history.

Final words

Taking a loan for starting or financing your business may or may not be favorable. Hence, you must assess the pros and cons of business loans in the light of the cost-benefit ratio. If the ratio is favorable, taking loans for starting a business will definitely help you to make a successful venture.