Singaporean corporations rely heavily on corporate business loan for funding, as these loans allow them to grow, improve cash flow, and meet other financial obligations. It can be difficult to choose the best Singapore corporate loan among the many options available. This article’s goal is to serve as a thorough resource for learning about the several business loan options in Singapore, including details on their features, perks, and qualification requirements. Businesses can better meet their financial needs and achieve their goals by selecting the most appropriate sort of corporate loan based on this knowledge.
1. Term Loans
When it comes to financing businesses in Singapore, term loans are the norm. In most cases, banks and other financial institutions will be the ones to extend such loans, and their primary purpose is to finance the borrower’s long-term goals including capital expenditures, business expansion, and acquisitions. Term loans are long-term financing arrangements that can have either fixed or variable interest rates, depending on the security provided by the borrower, which could be real estate or machinery.
Term loans can be classified into two types:
(A) Unsecured Term Loans
Term loans that do not require collateral are known as unsecured loans. These loans are typically given to well-established businesses with excellent credit. The loan amount and interest rates are based on the borrower’s and the company’s creditworthiness and financial stability, respectively.
(B) Secured Term Loans
With a secured loan, typically a term loan, the lender will want some sort of collateral, like a piece of property or machinery. Because the lender is protected from loss with a secured loan, the interest rate is typically lower than with an unsecured loan.
2. Revolving Credit Facilities
Corporations can gain access to capital on an as-needed basis through revolving credit facilities, which are a form of corporate loan. The money can be put toward anything that requires quick funding, like managing cash flow or financing accounts receivable. Banks and other financial institutions are common sources of revolving credit facilities, which may be secured or unsecured.
Revolving credit facilities can be classified into two types
(A) Overdraft Facilities
Businesses can overdraw their accounts up to a certain amount with the use of overdraft facilities, which are a form of revolving credit. Overdraft lines of credit are often secured by collateral and extended only to businesses with a stellar credit history.
(B) Line of Credit
Lines of credit are a form of revolving credit facility through which firms can borrow money as needed, up to a certain limit. Credit lines, which can be secured or unsecured, are extended to enterprises with a good credit history.
3. Invoice Financing
Business invoices can be financed through this method of corporate borrowing. Instead than waiting to get paid by clients, you can get cash quickly by selling their invoices to a lender at a discount. Banks and other financial institutions are common sources for secured and unsecured invoice financing, respectively.
Invoice financing can be classified into two types
When a company uses factoring, the lender buys its accounts receivable from the company. The lender subsequently becomes responsible for collecting the receivables and taking on the risk of non-payment.
Invoice discounting refers to a form of invoice financing in which the borrower receives a loan based on the accounts receivable. It is the company’s responsibility to collect payment from customers, but it will keep the accounts receivable.
4. Trade Finance
Corporate trade finance loans finance international trade operations. It entails funding purchases and managing risks such foreign exchange rates, political instability, and credit risk.
Trade finance can be classified into two types
(A) Letters of Credit
A bank or financial institution guarantees payment to the seller using letters of credit. Letters of credit reduce non-payment risk in international trade.
(B) Documentary Collections
Documentary collections are trade finance that uses a bank or financial institution to pay for and deliver products. The bank or financial institution facilitates the transaction between the buyer and seller.
5. Asset-Based Loans
Financial institutions can get asset-based loans if they have enough collateral in the form of company assets like inventory, accounts receivable, and equipment. A loan’s terms are typically established based on the company’s creditworthiness and the value of its assets. Financial institutions like banks are common sources for asset-based loans.
Asset-based loans can be classified into two types
(A) Inventory Financing
To help firms with their inventory needs, financial institutions offer inventory financing, a form of asset-based lending. The creditworthiness of the business and the worth of its inventory are the two primary factors used to determine the loan amount.
(B) Equipment Financing
Business establishments can get the money they need to buy machinery and other equipment with the help of a loan classified as equipment financing. Loan amounts are typically determined by the market value of the equipment and the company’s financial stability.
6. Mezzanine Loans
Mezzanine loans are an alternative form of corporate financing that can be utilised for expansion or an acquisition. In the capital structure of a corporation, mezzanine loans sit below both debt and equity. Private equity and hedge funds are common sources for mezzanine financing.
Mezzanine loans can be classified into two types
(A) Convertible Mezzanine Loans
Mezzanine loans that can be converted into stock in the company are called “convertible” loans. Because of the possibility of equity conversion, interest rates on convertible mezzanine loans are often higher than those on other forms of loans.
(B) Non-Convertible Mezzanine Loans
Mezzanine loans can be converted into equity in the company, but non-convertible mezzanine loans cannot. There is a significant interest rate difference between convertible and non-convertible mezzanine loans.
Look into: SME loan for new business
Businesses of all sizes in Singapore rely heavily on corporate loans to help fund expansion, control cash flow, and meet immediate and long-term capital requirements. Term loans, revolving credit facilities, invoice financing, trade financing, asset-based loans, mezzanine loans, and mezzanine loans are all accessible in Singapore as corporate loans.
Loans come in a variety of shapes and sizes, each with their own set of advantages and characteristics; businesses should pick the loan that helps them achieve their goals most effectively. Companies in Singapore’s competitive market can gain the financial footing they need by learning about the various corporate loan options accessible to them and determining which ones are most suited to their specific needs.
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