All About Loan In Singapore
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Singapore Business Loan Tips – How To Get One Part 2

Continued from part 1 on Singapore business loan tips.

Paid up capital

Another important figure to note is your company Paid-up capital. The paid-up capital is a reflection of how committed the Directors and shareholders are to the business and also an indication of their commitment to repay the Singapore business loan being applied for. A higer paid-up capital is more favourable for your application for a Singapore business loan.

As briefly mention previously, the company Net Worth is a figure that has to be positive. Different business loan lenders may have different ways to calculate the net worth of the business in money terms. This is so even for an unsecured line of credit.

A simple calculation can be generally used for calculating net worth. As long as net worth
is positive, your company should pass this test.
Paid-up Capital + Retained Earnings (OR – Accumulated Losses) + Net
Profit (OR – Net Loss) = Net Worth

Variations from different business loan lenders may include items like Loan to/from Related Parties, Loan to/from Directors, Depreciation, etc, when assessing for your Singapore business loan Generally, a higher net worth is more favourable for business loan application.

Trade Debtors

A common figure that businessmen think is a good figure is the high amount of Trade Debtors they have. It shows that there is a lot of money waiting to be collected. However, when it comes to Singapore business loan applications, a high amount of debtors indicates an inability of a company to collect their sales revenue.

If your company’s debtors is significant compared to your company cash sales, it can be deemed that your company is facing collection problems. And these debtors may be written off as bad debts in future. It is effectively a cash loss. For loans in Singapore these factor is undesirable when you apply for a business bank loan.

If high debtors are due to long cash payment terms that you have offered to your customers, make sure that you have documents like agreements and invoices to show the cash terms when required by business loan lenders.

Business loan lenders may feel that the short term business loans offered to you are used in financing your customers instead!

Business loan lenders who does large to small business banking generally know that there are industry standards for payment terms. Trust that business loan lenders have a good idea of them when assessing your case to borrow money in terms of Singapore business loans.

If the debtors are long overdue, it shows that your customers are bad paymasters. Your business may run into trouble if you are relying on those long overdue collections to service a Singapore business loan that you are applying for. So contrary to common belief, smaller amount due from debtors are favourable when applying for business working capital loan

Trade Creditors

Having debunked the common misconception on debtors, it means that it will be more favourable to owe cash to your vendors. Having high creditors effectively mean that you are getting FREE business loan financing from your vendors. They acting as your financing companies for your inventories.

The ability of your company to delay payments shows that you are an influential player in the supply chain. This will not go unnoticed by business loan lenders assessing your business loan application even if you have engaged the services of a business loan broker.

Vendors are willing to stretch their dollars for your business because of existing dependable
relationships and the importance of the your business’s role in the supply chain. A higher trade creditors figure is better than a low figure.

Inventory

There are 3 types of inventory.
1) Raw Materials
2) Works-in-Progress
3) Finished Goods

Most businesses only hold finished goods in inventory. High inventory effectively means that cash is “locked up” in the inventory.

In the unlikely event that a company has to liquidate, raw material will have the most value while finished goods will have the least. This is simply because raw materials can be
simply disposed by selling to the many manufacturers that need them in cash terms. Finished goods are more difficult to disposed off as they are already the finished product and most likely can only be sold through retailers who wants those particular products to the end user. Keep more raw materials, less finished products for Singapore business loan application.


Related Parties

Transactions with related parties are very tricky items in asset based lending, unsecured loans, commercial Singapore business loans, and many other types of business loans.

If your business makes a $100,000 net profit, and a loan to your sister business for $100,000 is issued, does the net profit count?

If you think it counts. Then do you add the $100,000 net profit when calculating your net worth in money terms?

A transaction of such nature effectively accounts for a net cash outflow from your company
for no justified reason. It’s not a cash expense. Bear in mind that when applying for a Singapore business loan, you are presenting your business information to business loan lenders that will assess and judge your business loan requirements with an impartial view.

An impartial business loan Singapore analyst will deduct the “loan to related party” from your
company net worth. You may run into negative net worth. When that happens, your company in in a negative cash position and you might as well shred your business bank loan application forms.

The thing is this. If your sister business is unable to repay the loan, you will not sue your sister company to recover the loan. You wouldn’t bring your sister company to court to recover the loan. In such situations, the loan to related party is unrecoverable. Which is the basis why it will be deducted from the net worth. Stay Away from related party transactions when trying to get a Singapore business loan.