Loans provided to enterprises to meet their general working capital needs in order to make their production continue
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Working capital loans are provided to enterprises for continuous production to solve their general problemsWorking capital demandLoan.As soon as the loan is put into the enterprise, it becomes part of the capital of the enterprise's normal production profits, and usually cannot be repaid automatically.Therefore, the loan term is long and the risk is high.
Working capital loan is based on the characteristics of long production cycle of enterprise products, large reserves of raw materials, slow capital return, etc., and the loan term and amount are determined according to the product sales progress.[1]
classification
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Mortgage working capital loan
Working capital loan
Loans secured by assets and/or personal guarantees.
The assets needed can be housesfactoryOr inventory.It can be paid up assets or assets used as collateral or loans.
How much collateral a financial institution requires depends oncompanyAssessment of loan repayment capability.
The bank may requireownerOr the directors of the company provide personal guarantee.They must be prepared to transfer private assets, such as housing, shares orsharesAs collateral.
Non collateralized working capital loans
Lenders will only provide unsecured loans to borrowers who they think are low risk or zero risk.Starting companies are generally regarded as high-risk activities, so there is little opportunity to obtain non mortgage loans.
Bank overdraft/credit loan
A bank overdraft allows you to withdraw funds that exceed the limit of your bank account.
The maximum amount that can be overdrawn is the amount of credit loan.The conditions and amount depend on the relationship with the bank and the credit value in the bank.
The bank overdraft is flexible and easy to use.You only need to pay interest for the overdraft amount, but the interest rate is usually 1-2% higher than the bank's basic interest rate.
Applicable to: all businesses and start-up companies.
short-term loan
Working capital loan
Unlike bank overdraft, short-term loans have a fixed repayment period, usually 12, and a fixed interest rate.
Assets may be required as collateral for loans.
If they have a good record and close relationship with the bank, the bank may even be willing to issue loans without requiring collateral.
Applicable to: all businesses and start-up companies.
Confirmed Sales Orders loan or receivables loan
Another way to raise working capital loans is to use confirmed salesorder(Confirmed Sales Orders) or Accounts Receivables.
1. If you need to complete a large order but lack sufficient funds, you can use the contract or order to apply for working capital loans.
2. If funds are needed to seize business opportunities, the value of receivables can be used to apply for working capital loans.Accounts receivable are accounts that have been billed to customers but have not yet been received.
If the company's customer business is stable and reputable, the lender may be willing to assist the company to solve the cash flow problem.
Applicable to: all businesses.
Loan for purchase and sale of goods
A special loan service specially set up for commodity trading business, such as importers, manufacturers, exporters, etc.For example, Letters of Credit, Inventory Loans and Trust Receipts.[1]
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Types provided by the government
International Loan Scheme (IF)
Working capital loan
The government can provide up to S $15 million in loans for companies to purchase fixed assets andprojectOr order financing.
Loan Insurance Scheme (LIS)
Assume the insurance plan for default.The government will subsidize 50% of the insurance.
Micro Loan
Very small businesses can obtain loans up to S $50000.
To assist local SMEs to reduce the risk caused by failure to receive payment, this preferential measure of insurance interest rate was usually only provided to companies with large trade volume.Through commercecredit insuranceThe plan can raise operating funds.[1]
Advantages and disadvantages
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advantage
1. Working capital loans are the fastest way to get cash.
2. AssistanceenterpriseOvercome the periodic low tide.
3. It can provide cash flow when the company faces short-term crisis, such as:customerWhen bankruptcy is declared.
shortcoming
1. It can only be used to solve short-term problemscashNeeded – Not enough to cover long-term plans and projects that require funding.
2. It is necessary to pay close attention to the loan situation, ensure timely repayment, and avoid being blacklisted by financial or loan institutions.[1]
