A Business Loan is a type of loan which is solely acquired by the business for its operations or other business purposes. Business loans singapore can be used for the following reasons:
- Equity Based – some entrepreneurs may enter into a business loan with a bank to have enough liquid assets to jumpstart and support the operations of a business. But before granting the loan for low income, most institutions will require to see a business plan to understand what the business is all about and documents to support its financial returns. If the business has already started its operations, the lender may require the company’s financial statements to support its capacity to pay. Most often, a lender is secured from the company’s equity which technically claims the lender a part-owner of the business.
- Asset Based – A business may require to itself to purchase assets such as machines and properties. The purpose of this loan will allow the business to expand its operations and grow its business. On another perspective, a loan may be used for other forms of expansion but requires the borrower a portion of its asset secured as a collateral. In simple terms, asset based business loan is borrowed against an organization’s asset. The lender on this case grants a loan based on the quality of the asset secured as a collateral.
There are cases where a business loan may be unsecured where the debt is not backed up by an asset or equity. In these cases, where a business loan is unsecured, gives a lesser risk to the lender compared to a personal loan. Despite the loan being unsecured, it forms part of the liabilities of a business allowing the lender a claim to its asset in cases where payment is not made. On other cases where a company is closed due to bankruptcy, these unsecured lenders will realize a smaller portion of the loan that has been provided after all secured debtors have claimed over the business’ remaining assets.
With this principle, secured business loans are supported by a lower interest rates compared with an unsecured business loan due to the probability of collection after a claim of bankruptcy.