Commercial Business Loans and Financing 101

Commercial Business Loans

What are business loans:

Business loans are monies that companies and enterprises borrow from banks and lenders to help fund and grow their business.

Types of business loans:

1) Business Term loan / Business Instalment Loan

A form of Working Capital Finance, Business Term Loans are unsecured credit facilities to allow for the general day to day working cash flow and daily business operations. Repayment tenor typically varies between 3 to 5 years. Financing cost at around ~10% per annum. Allows for good flexibility of business usage.

2) Invoice Financing / Factoring / Accounts Receivable Financing

With this financing option, the company sells its accounts receivable to the bank at an agreed percentage of up to 90%of the value for cash to allow for immediate capital, a tool commonly used by the SME to boast cash flow. The emphasis of granting the advance payment lies on the value of the accounts receivable. With the use of factoring to obtain the cash needed to accommodate a firm’s immediate cash needs will allow the business to maintain a smaller on going cash balance. By reducing the size of its cash balances, more capital can be plough into investments for the firm’s growth.

3) Trade Financing (Letter of Credit - LC / Trust Receipt - TR)

A major payment method in international trade, usually for the purchase of raw materials and supplies. The buyer does not need to pay until the documents are received in good order while the sellers would be reassured of payment as the Trust Receipt is backed on the strength of a bank to pay.

4) Spring Financing Schemes

Spring Financing Schemes provides cost effective financing solutions for Small and Medium Enterprise (SME) to obtain funding. The loan is ultimately granted and approved by the partnering bank with risk sharing with Spring Singapore. Common Spring financing schemes include Micro Loan programme (MLP) and Local Enterprise Finance Scheme (LEFS).

5) Machinery and Equipment Financing

Secured financing to fund businesses for the purchase of machineries and equipments. As financing is secured, financing cost is typically low and somewhat comparable to property mortgage financing. Allow for up to 90% financing of the machine / equipment value.

6) Vehicle Hire Purchase and COE Financing

A hire purchase facility to finance the purchase of a commercial vehicle, including the finance of the certificate of entitlement (COE) for your company business vehicle. The financing bank will disbursed the loan directly to the vendor and acquires and  retain ownership of the vehicle while the borrower becomes the hirer. The maximum quantum of financing is up to 90% of the valuation or purchase price whichever is lower.

7) Business Mortgages – Commercial & Industrial Property Loans

The ultimate financing that allows you to own your business workspace. Financing terms is commonly pegged to Sibor, Fixed Rate or Board Rate with generally a 2 -3 years lock in period. Some banks may offer Interest Servicing only financing and helps improve your company cash flow.

Allows for cash out term / equity loan for extra capital if valuation of property has risen sharply. Current interest financing cost at typically around ~2% depending on terms and conditions and lock in period. Offers some of the lowest financing cost solutions for businesses as the financing are secured against the mortgage of a property.

Mortgage Supermart helps you and your businesses compare the best business loans in town. Contact us for a discussion today!