Private personal loans are insufficient to grow your business

Even if you have raised private personal loans from family and friends, you still need to determine how much money you will need to start your business.

By: Hitesh Khan/

How much money will I need to start my own business?

Even if you have raised private personal loans from family and friends, your business plan is vital in determining how much money or capital is needed in starting a business.

You will need to determine your operating expenses (rent, utilities, maintenance, salaries, taxes, etc.), the cost of supplies and materials and the amount to repay borrowed money. Generally, it is advisable to consult with an accountant who can estimate your net income.

What funding alternatives should I consider for financing a business?

When it comes to financing a new business, there are several options that an individual should consider. Besides private personal loans from family and friends, primary funding source may include borrowing a loan from banks, venture capital firms, local development companies or government agencies. If borrowing is not an option, then perhaps, leasing equipment or vehicles may be an alternative. For most business owners, leasing can be beneficial because it does not tie up your cash flow.

Additionally, starting a business may require using your own personal funds or savings to help finance your business venture.

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By committing your personal finances and private personal loans from family and friends, you show confidence in risking your own money and how serious you are about owning a business.

Other financing options may include asking family, friends or business associates for support or perhaps, you may want to consider a business partner. When considering a business partner, keep in mind that you will need to work together consistently. Therefore, the success of your business relationship will depend on factors such as personality, character, business ethics and management style. Nevertheless, enlisting a business partner does not guarantee all your funds, but it can assist you in raising additional capital for your business.

If your private personal loans are insufficient, what will I need to do when applying for other types of loan?

A strong business plan, financial statements and tax records will play a key factor in applying for a loan. Being prepared with these items can expedite the loan process as well as make it easier and less frustrating for you.

Also, be prepared to answer questions like: “Why are you applying for the loan?”, “How will you use the loan?”, “How much would you like to borrow?”, “How do you plan to repay the loan?” Furthermore, you may be asked to provide an outline of your experience and management capabilities as well as the expertise of your staff.

Financial institutions follow the six C’s principle before issuing a loan:

• Character of the business owner

• Credit history

• Capital

• Cash flow

• Collateral

• Capacity to repay the loan

Besides private personal loans from family and friends and personal funds from your savings, you should consider the following type of credit to grow your business:

Leasing – an easy alternative to borrowing funds for the purchase of equipment, supplies or other items for your business. As with any business decision, you will need to weigh your options and calculate the costs associated with making a one-time purchase. With leasing, you are able to finance the entire cost of your purchase without tying up your cash.

A Line of Credit – allows your company to borrow against an established credit limit for short-term working capital needs. Borrowings are payable on demand, and interest rates are tied to the Prime Rate.

A Term Loan – ideal for financing “long-term” assets such as buildings, equipment, leasehold improvements and permanent working capital needs. Interest rates can be fixed or “float” with the Prime Rate and terms vary by project. We can help you choose the loan structure that makes sense for you.

A Letter of Credit (L/C) – a financing vehicle that essentially substitutes the credit strength of the bank for that of your company. Banks issue Standby L/Cs to support third party loans, performance guarantees and other obligations of your company. Documentary L/Cs to support domestic and international trade are issued either as a direct obligation of the Bank or as an indirect obligation through one of our international banking correspondents.

Government sanctioned loans – the Singapore’s government has committed S$2 billion for loans specifically designed for SMEs.

How to Secure Personal Loans Quickly

If you have limited capital and are searching for personal loans to expand your business, the loan consultants at iCompareLoan can set you up on a path that can get you a it in a quick and seamless manner. Our loan consultants have close links with the best lenders in town and can help you compare various loans and settle for a package that best suits your needs. Find out money saving tips here.

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If you are looking for a new home loan or to refinance, our Mortgage brokers can help you get everything right from calculating mortgage repayment, comparing interest rates all through to securing the best home loans in Singapore. And the good thing is that all our services are free of charge. So it’s all worth it to secure a loan through us for your business expansion needs.

Contact us for advice on a new home loan.

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