You want to develop your new company faster but without attracting new shareholders - so sell some of the shares, and you are thinking about bank financing. Should you take a business loan in Singapore on behalf of the company or as a shareholder/individual? In this article, you should find answers to this question to make an informed decision. Many people, not only those with Start-Up projects or those thinking about other schemes with funding from state programs, ask themselves this question.

The general answer to the question is: 'It depends!' It depends on several variables, but the ones that any lender who wants to make sure they get their borrowed money back looks at:

1. company history,
2. bank history of associates,
3. the financial situation of the company,
4. whether or not you have personal guarantees that you can employ (collateralize, as the bankers say) for the loan,
5. the safety of the reimbursement source,
6. the profitability of the project in which you will invest the money.

Main Significant Differences Between These Two Variants

Mixed credit (for working capital or investments) that you can apply for per company (as a legal entity) is something to consider.

Advantages:

• Much higher accessible values;
• More competitive costs;
• More flexibility on the structure/elements of financing. For example, for an investment business loan in Singapore, you can request and receive the grace period, in which you do not pay principal installments for 3-6-12 months. Other elements can emerge from your story: what you want to use the money for and how you want/can the business generate added value to repay the loan.

You also have benefits such as:

• Longer repayment terms correlated with the technical/economic life of the investment) and with reasonable periods in which you cannot repay the principal (3-6-12 months);
• Graph with the interest on the balance through which you pay smaller amounts vs. the "equal rates" option.
• Theoretically, there is less liability; the debt is on the Singapore company. Practically, it is difficult to obtain loans without the future and potential patrimonial involvement of the shareholders or administrators,
• There is also the possibility that the financing allows unlimited uses/repayments/reuses throughout the credit period, and thus, you can more easily amortize the costs.

Theoretically, future income can be considered to validate the affordability of payments for credit installments. You have limited tax deductibility of the costs involved. There are also disadvantages to consider:

• Higher or more expensive collateral requirements (guarantee funds/etc.).
• Longer time to get approval.
• There will be stricter monitoring of the use of the funds.
• You may be asked for your contribution.
• It can be financially monitored (quarterly/semesterly) after accessing the loan.
• The possibility of being 'recommended' to access other banking/non-banking products (e.g., life or health insurance for shareholders, internet banking, etc.)
• Mandatory insurance for goods bought on credit.

A Second Option to Consider

Option 2: Loan for personal needs that you can apply for as a natural person

Advantages:

• More flexible guarantee basket or even possible without material guarantees,
• Freedom of use,
• Shorter approval time,
• No contribution will be asked.

Disadvantages to consider:

• Available values ​​are much lower,
• Lending terms of a maximum number of years,
• Costs (annual compelling interest) higher than in the case of a business loan,
• Inflexible repayment schedule,
• Greater personal liability: the debit is yours directly, not the company's,
• You must be employed, with reasonable income and a debt level that allows access to new loans,
• You will need to have unemployment and life insurance.

There are accounting implications for putting money into the firm. For example, whether you ask the company for interest or not (in the first case, you are complicit with the declaration of income), the financiers will ask you about the source of the money to overcome the first suspicion. There are other complications, especially if you don't transfer the borrowed money to the company by bank transfer. When assessing the affordability of the payment amounts for the credit, it will not be possible to consider the company's "future profits" precisely because the loan is "per individual" and is for personal needs.

In the End, What Kind of Credit Do You Choose?

A general recommendation (for particular cases, an individualized study is needed) is to try a business loan, mainly due to the costs, higher amounts available, etc. You can also take into account a mixed option in which you access credit as an individual, which you can use as a collateral deposit for a somewhat more consistent loan for the company (you make, as the bankers say, "leverage" your amount) situation in which you can also claim more convenient costs thanks to collateral cash. You have to consider, however, that a company at the beginning of the road is more difficult to finance because it has no history.

There are solutions in the market, but lenders ask for a minimum of 2-3 months of activity, and the costs are correlated with the inherent risk of a business that has just started. Do not lose sight of the other affordable financing solutions at the beginning of the journey: own funds, friends/family, grants, venture capital funds, attracting new shareholders from Singapore. That is what you should consider:

• the evolution of newly granted loans (considering the market trend);
• loans with variable interest of the personal needs type (for individuals);
• loans with individual values ​​below the equivalent of a certain amount (for legal entities).

Many Companies Opt for Loans

When you need credit for your company, please do not believe it is a good idea, thinking it is not a good start. Many start their businesses the same because it is hard to have the money needed to start something from zero.  The most common situation in which a company needs credit is when it is in the start-up stage and needs liquidity to carry out its activity. Many new businesses struggle to raise start-up capital until the business model has proven feasible and new customers start coming.

When external financing sources are challenging to obtain, the company's capital is often financed by borrowing from the company's associates, who are rewarded when the new business starts to generate income. Even companies with a history of activity sometimes require a business loan from shareholders, either because they do not have other sources of financing for development or because the terms of granting the credit are more friendly. See your options, be bold, and start your dream business if taking credit is the way to do it.

Publication: 16 October 8:53