Personal or commercial loan: which one is best suited to your needs? If you need help for getting a loan why not get it from a licensed moneylender in Singapore that will help you choose the type of loan that suits you best.
Your business is booming. You have just received a large order and need to purchase additional stocks. Or maybe you want to hire a new employee or invest more in digital marketing.
“If you don’t invest in the company, you’ll miss the opportunity to grow the business at a critical time,” says Jasmin Ganie-Hobbs, Director, Major Accounts at BDC. “A loan will allow you to take advantage of opportunities while protecting your cash flow.”
But how do you choose between a personal loan and a commercial loan? Ms. Ganie-Hobbs, who has nearly 15 years of experience in providing loans to business owners, highlights for you the advantages and disadvantages of each to make your choice easier.
Three advantages of personal loans
One of the main advantages of a personal loan is that it can be less expensive than a commercial loan. “If you already have a mortgage line of credit, this can be a way to borrow at a lower cost,” says Ganie-Hobbs.
Although it now takes much less time to get a business loan, if you already have a bank relationship or a personal line of credit, getting a personal loan can be faster. “When you need funds very quickly – for example, if you have to pay your staff the next day – it makes sense to use your personal line of credit,” says Ganie-Hobbs.
Easy access to the site
If your business has not yet generated a lot of income, but you have a good personal credit rating, it may be easier for you to get a personal loan than a commercial loan.
Three disadvantages of personal loans
No opportunity to build your commercial credit rating
Your company’s credit rating is different from your personal credit rating; it is based on reports from companies that do business with you, including your suppliers and financial institutions.
“If you regularly use personal loans and personal lines of credit instead of business financing, you will ultimately limit your options,” says Ganie-Hobbs.
Lower financing limits
The borrowing limit for personal loans is sometimes lower than that for commercial loans. Interest rates can also be high if you have a poor credit rating.
“The biggest disadvantage of a personal loan is that there is no distinction between your personal finances and those of your company,” says Ganie-Hobbs. If your company defaults, your personal credit rating will be tainted and you will be held personally liable for the loan.”
It should be noted that you may also need to provide personal guarantees to obtain a commercial loan.
Three advantages of commercial loans
Opportunity to build your commercial credit rating
Taking out a line of credit, or to get business loans in Singapore will help you build your company’s financial credibility.
A more favourable trade credit rating can result in better terms, higher financing limits and additional credit from suppliers. “It will eventually be much easier for your bank to provide you with loans if your company has a good repayment history,” says Ganie-Hobbs.
Simplified tax return
Fees, penalties and interest you pay on funds you have borrowed for business activities or to acquire real estate for business purposes are tax-deductible expenses. It will be easier for you to track money and complete your tax return if you separate your personal and business finances.
Higher funding limits
Often, the financing limits for commercial loans are much higher than those for personal loans. The amount will be determined based on your income and the guarantees you offer.
Three disadvantages of commercial loans
Incorporation often necessary
In most cases, your business must be incorporated to qualify for a commercial loan. Some lenders may provide loans to individual companies.
Longer waiting period
Getting approval for a large commercial loan can be very time consuming. “Small business loans can be granted in just a few days,” says Ganie-Hobbs, “but larger loans can take a few weeks.
Difficulty for start-up companies to meet eligibility criteria
New businesses may have difficulty obtaining a loan if they have not yet generated significant revenues. Entrepreneurs with a solid business plan can apply for a start-up loan. Other options available to start-ups include organizations such as Futurpreneurs, venture capital financing and corporate credit cards.
Which one is best for your company?
According to Ms. Ganie-Hobbs, a commercial loan is generally the best option, as long as you are eligible and do not need funds in the very short term.
“When you are committed to growing your business and building your reputation with lenders,” she says, “you need to demonstrate that you have a good credit history and the ability to manage commercial loans well.
Business owners should be prepared before applying for a commercial loan. “You should have financial statements and forecasts that are readily available and a business plan,” adds Ms. Ganie-Hobbs, “a summary presentation of your management team, a general presentation of the company and details of why you need the funds.
Business owners should also discuss credit with their lender as soon as possible.
“Don’t delay in building your commercial credit relationships. Monitor your cash flow projections and make sure you have access to credit when you need it,” says Ganie-Hobbs.
“It is best to discuss your credit needs as soon as possible; don’t wait until you run out of money.”