More and more Singaporeans are open to the idea of setting up their own company. Not surprisingly, the lure of a more flexible work arrangement, ability to be autonomous and the pursuit of more money are attractive reasons for Singaporeans to become entrepreneurs.
But we also know that becoming a successful entrepreneur requires much hard work, guts and most of all, resources. Having the capital to start your business is one thing, but along the way, you might realise that you need more money to sustain the business.
This is when a business loan can be helpful. While some may remain conservative and frown upon the idea of taking a loan, having the money can certainly help small businesses ease cashflow problems and stay in the black.
Now, it might not seem like a good idea to go into debt the minute you have cash flow problems, but there are actually five excellent reasons why a business loan can be considered good debt and good for the business in the long-term:
1. Tide over unexpected expenses
No matter how we try to plan and anticipate our business expenses, there are bound to be times where the unexpected can happen. A long-time client suddenly being unable to continue with the working relationship, a sudden breakdown of your equipment or an increase in certain business cost could easily affect your company’s cash flow.
In such situations, you may, or may not have the excess cash to tide you over. Applying for a business loan could come in handy, especially if it allows you to repay the loan over a period of a few months.
2. Ensure liquidity and ease cashflow problems
A business always has fixed monthly costs. On top of rental and utilities, you may also need to pay employees a monthly salary. Even when you’ve been in business for a couple of years, you could find your revenue dropping unexpectedly due to economic conditions or changes in the industry. Ensuring liquidity during such periods are crucial and you definitely don’t want to have to deal with cash flow problems that stop you from paying your rent and staff.
Some businesses, especially those dealing with importation of consumer goods, may require you to pay for the goods upfront before you receive and sell them months later. In such cases, a business loan will be able to help tide you over before your revenue stream kick back in.
3. A business opportunity that outweighs the potential debt
A good opportunity seldom comes, and every now and then, an opportunity falls into your lap that is too good to pass up. It can be a chance to enjoy a bulk order discount or to rent cheaply for a longer-term commitment. In these instances, determining the return on investment of the opportunity requires weighing the cost of the loan versus the potential revenue you stand to gain.
If the potential return on investment outweighs the debt, it makes sense to go for it!
4. You could do with more help
Some entrepreneurs may start out on their own and in order to cut cost, they might be wearing many hats at the same time. But as the business grows, it may be more efficient to hire someone to help you with a specific role so that you can concentrate on what you do best.
This is when investing your money in new talent could actually help you sell more and increase business efficiency. If, when all costs are factored in, taking out the loan is likely to improve your bottom line — go for it. If the connection between financing and a revenue increase is hazy, take a second look at whether taking out a loan is your best choice.
You want to be confident in your ability to pay back a business loan over time and to see your business succeed. Every business decision involves taking a risk. Ultimately, only you can decide whether that risk is worthwhile.
5. Business Expansion
Making the decision to expand your business is often about timing, even if it can be a little daunting. Whether it’s about opening a new branch or breaking into a new market, it’s all about finding the right time to do so. At times like this, hesitation can mean giving someone else the chance to get there before you do.
In situations like these, you’ll want to have enough funds available so that you can take advantage of it. Getting through to your investors may take a long time, which can make you miss the opportune time. A business loan thus allows you to have the funds available; sometimes, the opportunity cost of missing the chance can be higher than the cost of the business loan itself.