What is a Business Term Loan?

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Many SMEs face difficult day to day challenges that stem from short term cash flow problems. These cash flow problems cause a rippling effect which not only hinder daily operations, but may also impede the long term growth of the company. A study in 2021 by Mastercard indicates that financing and working capital is a key challenge for SMEs amidst their recovery from Covid19 outbreak in 2020.

Business Term Loans (BTL) can be a financing solution for SMEs facing these challenges. These are short term one-off loans that can be used to address urgent and immediate business needs. Businesses that find themselves cash-strapped can find this type of loan useful in tiding over emergencies to maintain and grow their business.

Why do SMEs need BTL?
The flexible nature of BTL allows SMEs to address a diverse range of short term financing issues. Some key uses include purchase or rental of fixed assets, employee hire, and cash flow for growth

Purchase of rental of fixed assets
Fixed assets such as equipment, machinery, new building/office, leases, renovations, and new project costs are some of the biggest expenses when an SME is expanding. Investment into the company’s capability is often the essential first step to offering new options and solutions to customers. For instance, having better machinery can result in efficiency and better product quality, whereas investing in equipment such as computers or internet networks can boost productivity. 

By taking a loan to offset the initial amount spent on larger scale purchases, SMEs can stay ahead of demand without a significant load to their cash flow. BTL provide firms with the funding required without the need for collaterals, which boosts financial maneuverability. This is especially helpful when it comes to urgent purchases such as the replacement of key machinery or equipment that has unexpectedly malfunctioned without crippling the company’s assets.

Upgrading Workforce
New hires with relevant skill sets may be employed to solve an immediate need. BTL enables SMEs to quickly solve the problem with new knowledge on board, enabling the business to answer the urgent need for new hires to plug any technical skill gaps, catch growth opportunities, and offer better value to clients. Beyond having new hires, the extra money also allows current workers to go for crucial upskilling and be better prepared to contribute back to the firm. Essentially, with more manpower and cash flow, SMEs can get more done in a shorter period of time. All these improve the points of differentiation, better the overall value proposition to customers and improve daily operations.

Cash flow for growth
Invoices with long payment deadlines, revenue inconsistencies due to prevailing situations and delays in essential projects can severely hurt businesses, especially when cash flow is tight. 

For instance, when buyers delay their payment to firms, the firm will then lack the necessary funds to pay for salary or purchase inventory. This can then lead to a failure to fulfill orders within budget and on time.

A strategic loan can help SMEs tide over sudden emergencies such as delayed payments. Due to the efficiency and speed of a BTL, it offers an almost immediate short term plug gap solution to prevent the problem from snowballing. 

What are the benefits of BTL?
When a business term loan is requested, a fixed lump sum of cash is loaned once off. This type of loan is especially beneficial to SMEs due to the following reasons and benefits:

  1. No collaterals required
  2. Online application and fast approval
  3. Flexible repayment terms

Unlike traditional loans provided by typical financial institutions such as banks, BTL offers greater convenience without collateral, making it easier for SMEs to secure the financing that they need without the hassle and waiting time. Firms can also enjoy greater flexibility in this type of loans to better suit evolving business needs.

What should SMEs take note of?
There are two key types of BTL offered by Funding Societies:

 

Express BTL BTL
Loan Quantum:  Up to $200k

Processing Time:  about 1 week

Loan Quantum:   $200k-$500k

Processing Time: about 2 weeks


Both may be similar, but Express BTL will appeal especially to younger companies as the documentation required is more straightforward with lower loan quantum. The larger loan quantum offered by the standard BTL is ideal for more established businesses with larger working capital requirements.

Some SMEs may not know this, but Funding Societies’ BTL can be repaid ahead of time with no early repayment fee! This allows SMEs to make payments whenever they are confident and comfortable, without the need to withhold payment and structure payment for the months ahead. 

Of course, SMEs need to ask themselves if they are ready to take a loan. By scrutinising the cause of the cash flow problem, the firm will be able to identify if it is a short-term issue or emergencies, or a deep-rooted business strategy problem.

What other loans can SMEs take?
If Business Term Loans are not suitable, there are other loans such as SME loans, invoice financing and Property Backed Financing to consider. Find out more with Funding Societies.

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1 Fulfilled by FS Capital Pte. Ltd. Terms and conditions apply
2 Fulfilled either by FS Capital Pte. Ltd. or Funding Societies Pte. Ltd. based on the client’s profile. Funding Societies Pte. Ltd. and FS Capital Pte. Ltd. are part of the Funding Societies brand. Terms and conditions apply.

 

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