Covid-19: SMEs across various industries facing liquidity crunch as lenders try to ease pressure

SINGAPORE — Unable to fulfil customer orders, one precision engineering firm is now seeing the backlogs snowball as flight cancellations and mandatory leave of absences wreck its work force.

Another business services company that provides equipment for events had no income in February, and is now hard-pressed to pay their employees. Yet another construction services firm lost business to competitors when several of its suppliers from China were unable to deliver the goods.

These were some anecdotes told during a Singapore Chinese Chamber of Commerce and Industry (SCCCI) roundtable on Thursday (March 5), where a panel of credit experts presided.

The anecdotes gave an insight into how small- and medium-sized enterprises (SMEs) are facing existential problems during this unexpected and ongoing Covid-19 outbreak, even while they try their best to heed the Government’s call not to shed jobs or slash wages.

Much of the spotlight this period has been on retail, food-and-beverage (F&B), tourism and aviation industries hit hard by the disease that is spreading worldwide, but the session — held at the Trade Association Hub in Jurong — reflected the extent that Singapore’s SMEs are suffering across the board.

One audience member said at the session: “As a mobility services company (formed in May 2019), we had been growing by 30 per cent each month. But we saw a 50 per cent slash in revenue in February alone… We are only a startup, what are my options?”

The panel consisted of Ms Charis Liau, group chief executive officer of crowdfunding platform Minterest; OCBC bank’s group chief credit officer Eric Lian; Goldbell Financial Services’ chief executive officer Alex Chua; and Mr Derek Pang, principal specialist at the Employment and Employability Institute.

In his Budget 2020 speech last month, Deputy Prime Minister and Finance Minister Heng Swee Keat announced short-term measures to support businesses and workers, including a S$4 billion Stabilisation and Support Package directed at helping businesses retain workers.

Mr Heng also recognised the need to help businesses with cash flow issues, through a temporary bridging loan programme for tourism businesses as well as an enhanced financing scheme for businesses to access working capital.

Ms Liau of Minterest said that such demand for help resolving cash flow issues cuts across industries.

Her company is disbursing a S$5 million SME Help Fund set up by JL Family Office, an investment holding group of companies, fund management firm Ara Asset Management and investment firm Straits Trading Company. It gives out short-term loans to businesses hit by the virus outbreak.

Data from the fund showed a spread of industries among the loan applicants, including retail and F&B, information and communications, construction and engineering, and wholesale trade sectors.

Urging companies to be proactive in engaging banks or non-bank financial institutions on their cash flow issues, SCCCI’s president Roland Ng said it is encouraging that banks and private-sector financial institutions have stepped forward to lend SMEs a helping hand.

A members’ survey by SCCCI done last month showed that the top three challenges to businesses at this time are a decline in revenue, cash flow issues and disruptions in their supply chains, Mr Ng said.

Panel moderator Chia Kim Huat, regional head of corporate and transactional practice at law firm Rajah & Tann, said that cash flow is the lifeblood of SMEs.

He later likened loans to “emergency blood transfusions” for businesses to keep afloat during the crisis, but questioned the panel of business lenders if there were any hidden costs and fees, given the generous lending rates offered by funds that are meant to help firms tide through the outbreak.

It prompted an audience member, property tycoon John Lim, to seek to clarify the issue. Mr Lim, one of the parties sponsoring the SME Help Fund, said that the low interest rates — of 0.5 per cent a month — are meant to guard against loan defaulters and not to profit from them.

“We are not here to try to make money out of it… There is no reason for me to, that is totally ridiculous… We decided that this fund would go out to everyone hit by Covid-19 and that is the principle,” Mr Lim said.

Mr Chua of Goldbell Financial Services, who is from a group of prominent business families that set up another S$5 million Hope fund to help SMEs, said that he, too, is irked by questions about what he stands to gain from giving out these loans.

This is especially so when the reality is that it is difficult to find contributors to the fund because it is not meant to be profitable, he said.

“You’ll be surprised how hard it is, when times are bad, for people to actually put in money (into these funds) when they hear about the interest rates … I have to tell (the contributors) that helping them to not lose money is very good already. I am not here to make them money,” he disclosed.

The article was contributed by Today.

New consumer finance model using psychometric and social media in Singapore

An algorithm that reads your social media feed, gets a fix on your digital personality and analyses your
online interactions with friends and family may now be able to determine if you get a loan.

The Law Ministry selected six firms last month (including Minterest) to pilot new business models for moneylending while also temporarily lifting a 2012 moratorium on new licences needed to operate in the sector.

The idea of using personal data to forecast a person’s likelihood of default is being explored by some
licensed moneylending firms here in what is an industry first.

The Law Ministry selected six firms last month to pilot new business models for moneylending while also temporarily lifting a 2012 moratorium on new licences needed to operate in the sector.

Its moves come as personal loans are on the rise. Singaporeans accumulated nearly $60 billion of debt,
excluding housing, credit cards and car loans, in the third quarter of last year.

The key factor for moneylenders is the credit score, which is used to discern a person’s financial reliability based on his credit track record and income levels.

But determining risk of non-repayment, even with the already strong credit bureau that Singapore has, is not an exact science, say those participating in the trial.

Credit reports may not necessarily reflect a borrower’s immediate financial situation, such as when they
have lost a job recently, said our co-founder Ronnie Chia.

Psychometric analysis, which feeds on social media and other online data from borrowers, allows lenders to determine the character and personality traits of borrowers.

These are important indications of the willingness to repay loans, said Mr Chia.

Mr Jonathan Chong, IFS Capital’s vice-president of business planning and analysis, said lenders will be able to assess the borrower better and faster by considering these additional data points.

“With permission, we can overlay the digital footprint of a user, including social and professional
connections, with the personal and financial data to help us form a more holistic picture of the (borrower),” said Mr Chong.

A more positive credit score means a borrower will get a more favourable interest rate that reflects his risk profile, said Mr Chia.

But there are dangers in giving the computer full autonomy in deciding whether a person is likely to go into delinquency, given that the accuracy of AI-driven risk assessments is sometimes questionable.

United States-based non-profit organisation ProPublica found how risk scores produced by artificial
intelligence were unable to accurately tell if a defendant is likely to commit a future crime, even though
these scores are already used in US courtrooms to guide judges during sentencing.

Its 2016 study found that the algorithm, which was developed by a private company, was “remarkably
unreliable” – only one in five people flagged as likely to commit violent crime went on to do so.

It also found that the system unfairly pegged African-American defendants to be at a higher risk of
committing crime than white Americans.

And even when accurate, the use of credit scores to determine risk and reward can be controversial.

China’s newly deployed social credit system, for instance, has been decried as Orwellian by critics for
penalising everyday behaviour.

Chinese citizens have been barred from buying flight and train tickets or purchasing property in recent
months due to a low score from loan defaults or other activities deemed to be anti-social.

These dangers are why there is a need for the Law Ministry’s pilot, so that the personal lending industry
can find out what safeguards are necessary as it heads towards the adoption of AI and big data analytics,
said Mr Edmund Sim, founder of fintech start-up Credit Culture.

However, even detractors of AI cannot deny the superhuman efficiency of computer algorithms, big data
and machine learning employed in various industries today.

Humans can get it wrong even without AI, and they do so while incurring higher costs that will eventually show up on the borrower’s bill.

In a demonstration at his Craig Road office, Mr Sim showed The Straits Times how its credit scoring engine analyses and scores applicants for their creditworthiness almost instantly.

He declined to give specifics on the algorithms used as they are proprietary to the firm.

While accuracy is a concern, machine beats man on one key element – algorithms apply their standards
universally and eliminate any form of bias associated with human intervention, said Mr Sim.

“Technology can benefit consumers by making things simpler, cheaper and more transparent, allowing
them to make better informed decisions,” he noted.

“The question now is the extent to which technology can be used in personal lending.”

Borrowers who repay loans early to benefit from new moneylending business model

Six companies in Singapore will pilot new business models for moneylending, which would grant borrowers better terms if they repay their loans early or on time, said the Ministry of Law on Tuesday (Dec 11).

The new models will also include more comprehensive use of data to assess creditworthiness, as well as use digitalised processes to lower cost.

Of the six firms, three – Credit 21, Dey and Quick Credit – can apply to operate four moneylending outlets each. IFS Capital, Minterest and Xingang Investment are allowed to operate one outlet each.

“The six firms will be issued moneylending licences to operate the outlets they apply for, in a one-time lifting of the moratorium imposed on the issuance of new licences.”

In 2012, a moratorium was imposed on new licenses for moneylenders. Since then, the number of moneylending outlets has decreased from 215 to 162 outlets.

“The six firms will be allowed to apply for licences for up to 15 new outlets in total, and this represents less than 10 per cent of the 162 outlets currently operated by the 157 licensed moneylenders,” said the ministry.

The licensee will be allowed to operate for up to two years from next year onwards. The ministry will then evaluate the results of the pilot and consider options for refining the moneylending regulatory regime, it added.

The firms, which were selected among 38 applicants, were chosen as they met a set of stringent mandatory criteria, the Law Ministry said.

These include the soundness and completeness of the business model, participation in debt assistance schemes, professional debt recovery practices, customer and communication strategies and effective cost of credit and credit policies.

They also have paid-up capital of at least S$1 million and a track record in providing consumer credit, said the ministry.

Read more at Channel News Asia.

Singapore and Indonesia working on S$13.8 billion bilateral financial agreement

To support monetary and financial stability in both countries, Singapore and Indonesia will be working out a US$10 billion (S$13.8 billion) package, comprising bilateral local currency swap and United States-dollar denominated repurchase agreements.

This was announced on Thursday (Oct 11) by Prime Minister Lee Hsien Loong who met with Indonesian President Joko Widodo at the third Singapore-Indonesia Leaders’ Retreat.

Singapore's Prime Minister Lee Hsien Loong and Indonesian President Joko Widodo witnessing the signing of the Bilateral Investment Treaty by Singapore's Trade and Industry Minister Chan Chun Sing and Indonesian Foreign Affairs Minister Retno Marsudi in Bali on Thursday (Oct 11).

Both leaders discussed a range of issues, including the review of the double taxation agreement between the two countries, and how the pact will help provide the right infrastructure and incentives for business leaders to invest.

They also spoke about the uncertain external economic environment which has affected many financial markets. Mr Lee said: “We have tasked our two central banks, which means the MAS (Monetary Authority of Singapore) on our side and the Bank of Indonesia on their side, to work out and conclude a bilateral financial arrangement soon.”

MAS managing director Ravi Menon said both sides are having preliminary discussions and details of the US$10 billion agreement “should be out soon”.

He explained that currency swaps or the repurchasing of the US dollars by central banks only happen when either party requests for it, but the vast majority are usually standby arrangements that serve to instill confidence in the market.

The current instability in financial markets arising from the normalisation of US monetary policy has sent capital moving out of emerging markets, including Indonesia. That has sent the Indonesian rupiah tumbling to its lowest level in two decades.

“Some outflow of emerging markets is perfectly normal and to be expected. But you just want to make sure it does not become a snowballing effect, that it does not become overdone. The most important reason for doing this… to build confidence in the region in the current climate of financial market turbulence,” Mr Menon said.

He also added that Singapore wants to make sure Indonesia is well-placed to ride out this period of fund outflows due to Singapore’s investments and business interests in the country.

“Indonesia has been feeling a little bit more of the pressure in the currency markets. … This we regard as something temporary because of the temporary nature of the situation that emerging markets are facing. We are pretty confident that Indonesia will emerge from this well within a year,” Mr Menon said, adding that the macro fundamentals of Indonesia are sound and its policy responses are judicious.

Singapore also has currency swap agreements with the central banks of China and Japan, and these agreements are renewed every three years.

Mr Lee — who is on a two-day visit in Bali —and Mr Widodo also witnessed the signing of several agreements, including the bilateral investment treaty which sets out rules on how Indonesia should treat investments and investors from Singapore and vice versa.

In a joint press statement by both countries, Mr Lee said the bilateral investment treaty “will encourage greater flows of investments into Indonesia”. Separately, Singapore’s Ministry of Trade and Industry said it would give companies greater certainty and confidence, as their interests are protected.

Singapore has been the top investor in Indonesia since 2014, with US$8.4 billion (S$11.6 billion) invested in 2017.

Singapore’s trade with Indonesia totalled S$59.4 billion in 2017, making Singapore Indonesia’s third largest trading partner after China and Japan. Indonesia is Singapore’s sixth largest trading partner after China, Malaysia, the United States, Hong Kong and Taiwan.

This is the third Leaders’ Retreat between both countries. The previous one was held in Singapore on Sept 7 last year, commemorating 50 years of diplomatic relations between both countries.

Mr Lee said he had a “fruitful discussion” with Mr Widodo on how both countries can deepen cooperation.

For example, Mr Lee said both leaders talked about how adjusting incentives and rules, such as the minimum investment amount, can encourage companies to invest in the Kendal Industrial Park and Nongsa Digital Park.

Kendal Industrial Park, which was launched at the 2016 leaders’ retreat and located at Central Java, is a project by Sembcorp Development and PT Jababeka of Indonesia. It is supported by the governments of both countries.

Nongsa Digital Park at Batam was launched in March this year to develop Batam as a “digital bridge” between Singapore and other Indonesian cities.

Both countries are also looking to develop a fellowship programme for regional leaders in Indonesia, which will be called the Rising Fellowship. Mr Lee said he hopes young leaders from various Indonesian provinces can come to Singapore and learn from one another.

Mr Lee also offered his condolences on the recent earthquakes and tsunami which devastated Central Sulawesi. A 7.5 magnitude earthquake and a tsunami struck the Indonesian island on Sep 27, leaving more than 2,000 people died.

In addition to deploying two aircrafts to send humanitarian assistance and assist with rescue efforts, Mr Lee said that many Singapore groups and non-governmental organisations have been actively fundraising to support relief efforts.

“Singapore stands with Indonesia during this difficult time. We are confident that these affected areas in Indonesia will make a quick and strong recovery,” he added.

On Thursday, a magnitude-6 earthquake struck off the Indonesian islands of Java and Bali, killing three people in Java and damaging some buildings while causing panic among residents.

Tremors were felt in Bali, where the Singapore-Indonesia Leaders’ Retreat is held concurrently with the annual meetings of the International Monetary Fund and World Bank.

Writing on Facebook, Singapore’s Defence Minister Ng Eng Hen, who is part of the high-level delegation accompanying Mr Lee, said he was woken up in his hotel room by a brief tremor but “apart from the lampshade swaying, everything else seemed fine”.


More opportunities for SMEs as Singapore Government reveals multi-billion-dollar IT spending plan

Small- and medium-sized enterprises were awarded about one-third of the S$2.4 billion in ICT tenders awarded by the Government in Financial Year 2017.

There are opportunities for small- and medium-sized enterprises (SMEs) in Singapore to be had as the Singapore Government revealed a S$2.4 billion to S$2.6 billion IT spending budget for the new financial year.According to the Government Technology Agency’s (GovTech) press release on Thursday (Jun 7), these SMEs accounted for almost two-thirds of the total number of ICT contracts awarded by the Government in Financial Year 2017. In dollar value, they were awarded about S$800 million of the S$2.4 billion set aside for that period.

Of the forecasted budget, 33 per cent will go towards keeping the lights on for existing IT systems such as a PC bulk tender for leasing of personal computers and buying of printers, GovTech said.There will also be a bulk tender to qualify a panel of companies to provide resources to support co-sourcing of projects with GovTech.The bulk of the budget, or 44 per cent, will go towards supporting transformation projects such as the National Digital Identity system as well as smaller scale projects like the Singapore Tourism Board’s Singapore Visitor Centre system. The latter empowers frontline officers with visitor information and services and the ability to provide tourists with tailored recommendation, GovTech said.Another 23 per cent will go towards growing the ecosystem, such as through a bulk tender for robotic process automation. This tender will support the implementation of such automated processes in Government agencies via a panel of companies qualified to provide the software tools and professional services needed, the agency explained.The plans were revealed just days after Deputy Prime Minister Teo Chee Hean launched the Digital Government Blueprint that, among other things, spelt out the key performance indicators public agencies should work towards to in the next five years.Some of the initiatives include having electronic payment and digital signature options for all digital services provided by the Government.


Warning Signs That You’re Headed Towards Bankruptcy

Have you ever feared going bankrupt? Or you’ve saved and invested so well that this thought doesn’t bother you at all? Read on to see if you need to worry or not.

We have seen so many celebrities go bankrupt that it’s no longer an alien term for us. Do you think there’s a way to predict a possible bankruptcy? Well, there might not be a definite formula for calculating stuff and deciding whether you should be worried or not, but there sure are some warning signs you need to watch out for. If you see any of these, you need to change a lot of things about the way you save and invest. And in case you don’t save or invest at all, you need to be worried, friend!

As the word suggests, bankruptcy is a situation when you have absolutely no money left in any of your bank accounts (or under your pillow). Now you know why we keep encouraging you to save and invest in the right places, don’t you? To help you further, here’s a list of warning signs you need to watch out for. In case you see any of these, you need to worry! Unless you make some major changes in the way you manage your finances, you might just go bankrupt!

Here are the signs:

  • Savings? What’s that?

No matter how hard you try to build a bank for a bad financial phase, you just can’t seem to save enough. Even before the money comes in, you have a long and extensive list of things to spend it on. You take savings way too lightly and believe in relying only on your Credit Card for a rainy day. It’s important to start planning your money early so that you have enough reserves to rely on for your retirement. Don’t wait for that dream job to turn into reality. Start now! If you’re not sure about where to invest, at least start by opening an RD (Recurring Deposit). Consult a financial expert for more help on the right investment options for you.

  • Missing payments? Who cares!

Not just your Credit Card payments, you can’t seem to make any of the other payments on time either. These include the basics like your electricity bill, telephone bill, etc. Sometimes you do it because you’ve developed this casual attitude towards it and other times, you’re just lazy or broke! Start managing your monthly budget and ensure that you make a note of all transactions. Being more aware of your current financial situation is the only way to predict your financial future. If you don’t have enough money left towards the end of the month, that’s one of the biggest signs that you might be headed towards bankruptcy.

  • Debt debt, everywhere!

You’ve a huge pile of debt to repay and you can’t seem to figure out ways of doing that. This debt could be a loan or some money you borrowed from a friend. Borrowing money from your friends or relatives is okay as long as you keep a track of it. If you let it grow, you’ll end up in a huge pile of debt without even realising it. We’re sure you don’t want to do that. Debts are the basic cause of bankruptcy. Be smart about the money you borrow and keep in mind ways of paying it back.

  • Curtailments and some more curtailments!

Just to get enough money to repay your debts, you often ignore the voice of your heart. No matter how much you love shopping, you just can’t shop because you’ve to use that money for paying people back. You never get a chance to pamper yourself and that gets quite frustrating sometimes. But you know that since you don’t have any other reserves to pay off your debts, you need to compromise on your wishes. Curbing your wishes is good when you have a habit of splurging on useless things that are super expensive; but you should be in a position to pamper yourself, every now and then.

  • Tring, tring! Your phone loves to ring!

Getting too many phone calls is okay as long as you like the person on the other side of the line. But if you keep getting calls from your debt collectors, that’s obviously not a good sign. This is the biggest warning sign that you’re almost about to go bankrupt. Instead of giving them innovative excuses, try looking for a real solution. Speak to a financial expert and let them guide you.

  • Your Credit Card balance is about to hit the roof!

You’ve got your Credit Card balance increased beyond allowable limits, and now you don’t know how to go back! The main reason for this is your careless usage. You keep swiping your card for every minute thing like groceries and that’s precisely what has caused this issue! It’s a bad sign because if you keep using your Credit Card, it just means that you don’t have enough cash handy. Living on credit is not the right thing to do. You need to try and survive without overusing your Credit Card. Once you learn that, you might be able to avoid bankruptcy.

  • Financial emergency! Not once, twice!

If you’ve been struck by a financial emergency more than once, that’s just a small warning before the actual storm. We all go through such an emergency once, but if it’s happened more than once, you need to worry! The primary reason you had to go through the same situation again is that you don’t have an emergency fund. An important part of getting your savings right is developing an emergency fund and keeping it handy for such bad situations. If you’ve been through financial emergencies a couple of times, you really need to watch out! The next financial emergency might not give you a chance to recover; you’ll just go bankrupt. We’re sure you don’t want that, do you?

So? What do these warning signs tell you about your spending habits? Are you safe or headed towards bankruptcy? Whatever the situation, you still have time to recover before the actual catastrophe strikes! Make the most of this time and these warnings. Improve your spending habits and don’t let your casual attitude towards money damage things for you.

This article was written by Shrutika Vaishnavi.

6 Mistakes You Commit In Your 20s That Affect Your Credit Score

The decisions you will take in your 20s can have a significant impact on your personal finance at a later stage. Read on to know about the mistakes that can be avoided in this age bracket to have a healthy Credit Score.

The twenties is an ideal age to decide the course of your financial goals. This is the best time to pick up investments that yield good results at a later stage or buy a Health Insurance cover at a lesser premium. Hence, the decisions you will take in your 20s could have a significant impact on your personal finance and this includes your Credit Score too. A healthy credit score can help you bag the best deal in terms of loans or other financial transactions whereas a low score may affect your loan possibilities. So for people in this age bracket need to be aware of the credit score worthiness and the mistakes they can avoid to keep their credit score healthy.

No Debt = Good Credit Score

A common misconception among most first-time or young professionals is that no loans or debt can get them a good credit score. This line of thought often leads them to make cash purchases and keeps them away from Credit Cards. For credit rating companies like CIBIL, no loans/debt actually equals a bad credit score. Since the credit score of a person is rated based on their historical ability to pay off a loan, the absence of any credit history stops companies from determining whether you have the capacity to pay off a loan.

Applying For Too Many Credit Cards

While having no debt may not get you a good credit score, applying for too many credit cards can also have a detrimental effect. Whenever you apply for a credit card, the company sends an inquiry to CIBIL asking for your credit history. When CIBIL notices that there have been multiple requests within a short span of time, they’ll identify you as a person who has a lower ability to make payments and hence requires multiple lines of credit. So, do not fall prey to the lucrative offers from credit card companies and avoid applying for multiple cards.

Closing Your Credit cards After Repayments

Millennials often use credit cards for big purchases like buying home electronics or automobiles. After they pay it off, they make the mistake of closing the cards, which can affect the credit history. A healthy credit score will typically have a long-term credit history. Closing the card relinquishes that record and lowers the average credit score despite timely repayments and clearing off the debt. So, it is better to retain the card even after paying off the debt.

Being A Guarantor For Someone’s Loan

We often make emotional decisions when we’re young. Being a guarantor for a friend or relative is one of them. When you sign up as a guarantor, you become responsible for repaying the loan in case they default. If you’re unable to pay off the loan, your credit score is bound to be severely affected.

Living Off Your Credit Card

In your early and mid-20s, when you’ve just started to get that taste of independent life, you’re likely to be a spendthrift. Your purchases are often based on your credit card limit and you tend to forget about the repayment clause before the due date. In case you fail to make the payments, your credit score will drop. But even if you do pay up on time, it’s still likely to indicate that your lifestyle is debt-heavy and can affect your credit score. You can control your unnecessary expenses and prioritise your spending based on your needs.

Late Payments

Missing EMI payments or credit card payments will not only attract late fees and interests but also adversely affect your credit score.

For youngsters in their 20s, it is important to enjoy life along with making financially sound decisions that can help them throughout their life.


This article was written by Adhil Shetty.

7 Mistakes to Avoid When Applying for a Business Loan

Businesses will require an additional injection of capital, big or small, several times throughout their cycle. Business loans are one of the options companies can look into to get additional funding which can be used various purposes: for purchasing additional IT equipment and machinery, cover operating expenses, grow or expand your venture, etc.

Common Business Loan Application Mistakes to Avoid

Applying for the right business loan and having it approved will depend greatly on avoiding several mistakes that you may commit during the whole process. As a business owner, you need to make sure you avoid making these grave errors during the loan application process:

1. Failing to have a clear picture of your business’s financial situation

This is the number one loan application mistake you can make from which all others can stem from. Having a messy bookkeeping and accounting system will make it difficult for you to understand where you are losing money and where you can best appropriate or use the loan for.
It is therefore important that you keep good financial records or at the very least, know the basics of bookkeeping. When you regularly review your financial records, you will be able to make accurate financial forecasts and create a suitable long-term financial plan for your business which will help you to borrow more wisely.

2. Not knowing your credit score

Your business credit score is one of the biggest factors banks and lenders will consider in reviewing your loan application. They will base the amount they will offer, related fees, interest rates, repayment terms, and even the actual approval of the loan on your business credit score.
Before applying for a loan, get a copy of your credit report from several credit bureaus. Also, make sure that your credit scores are up-to- date and accurate.

3. Having a poor business plan

When applying for a business loan, you can’t just submit your financial statements and other documents to assure the lender that you have a regular source of income. Keep in mind that if you are applying for a loan, you have to demonstrate how your business will continue to operate and make money.
With a good business plan, you will show the lender your goals, how you intend to reach them, supporting data, and your past and current financials. This key document will help convince the lender they should invest in your business.

4. Failing to have a clear idea of what the loan will be used for

All lenders will want to know where and how you will use the loan they will grant you. As such, you need to know the specific reasons why you need a loan and explain this thoroughly to the lender. The best business bank or lending institution will need to know how a loan will benefit your business.

5. Applying for the wrong type of business loan

There are different types of business loans and when applying for one, you should always match the type of loan to its purpose. For instance, if you have to finance commercial real estate, don’t take out a business loan with a 12-month term.
Also, avoid applying for a long-term loan to pay for some short-term expenses such as meeting payroll or purchasing additional supplies to satisfy your customer’s request. If you’re still in the initial stages of applying for a loan, look for a lender that offers the particular type of financing you need.

6. Selecting the wrong lending institution

There are now more establishments offering business loans: banks, credit unions, crowdfunding websites, etc. Take some time to evaluate all of your options. You can even send your applications to several lenders and when you receive an approval, carefully compare the offers to make sure you’re getting the best possible terms.
The lender you ultimately choose should be the one that offers the best deal suitable to your needs and payment capability.

7. Not reading the fine print

Lastly, before signing the contract or agreement, go over all of the loan fine print and carefully read every term and condition. Make sure you know the specific interest rate and if this is fixed or variable. If it varies, be sure you know when it will change.
Get all details about payment schedules, grace periods, late payment fees, and prepayment penalties, if you decide to pay off the loan early. In case you have any questions about any of these, discuss them with the lender before signing the agreement.
A business loan can be the best solution you can get if your company is struggling or needs a substantial amount of money quickly. However, to get prompt approval and to make sure taking out a loan won’t cause more financial issues for your business, study the different types of loans offered by various institutions. Make sure you prepare for the whole application process properly as well.

This article was contributed by a guest on Invest Openly.

What is P2P lending and borrowing: All you want to know about Digital marketplace for loans

Peer-2-Peer platforms offer access to first-time loan applicants, small business owners or SME employees to get credit on easy terms when required.

In layman’s terms, Peer-2-Peer (P2P) lending and borrowing is like a digital marketplace for loans. Hence usually it is known as ‘marketplace lending’ or often gets confused with crowd-funding. Instead of applying for a loan with a bank, NBFC, private finance company or any other loan institution, you can request a loan from regular people like you and me (therefore, the term Peer-2-Peer).

Most of these loans are unsecured for a large number of people who are underbanked or thinly banked. Most of the financial institutions stay away from giving loans to first-time loan applicants, small business owners or SME employees, women or people living in negative pin-code areas. Peer-2-Peer platforms offer access to these very groups of people to get credit on easy terms when required.

The actual logistics of Peer-to-Peer can be a little more complicated in India, but some platfoms like ours allow the borrower to download the app, fill the application form and apply for the loan. As a borrower, you have to fill a quick online registration form and pay the upfront registration fee which is refundable. Then proprietary credit assessment is done and a brief commentary of why you want a loan is shared with the lenders. The app requires the loan applicant to submit bank statement, upload basic KYC documents like PAN card, Aadhaar card etc. The proprietary algorithm assigns the loan interest rate and tenure to post the loan on the marketplace for lenders to assess and invest.

Lenders on the Peer-2-Peer marketplace are able to browse loan requests of multiple applicants. Each loan request offers relevant information about the borrower to the lender such as income, credit history, reasons for loan etc. If the lender likes the loan applicant’s profile then they can fund a certain portion of the loan. Partial funding enables lenders to diversify their investments and hedge potential risks. Once the transaction is completed, the loan applicant repays the loan in the form of equated monthly installments or popularly known as EMIs.

Is Peer-2-Peer Loan for You?

P2P lending and borrowing is not for everyone. Like any other financial investments, it has its risks and payoffs.

A major benefit of taking a Peer-2-Peer loan in India is that it is paperless, transparent and fast. The rate of interest is traditionally lower than NBFCs or other finance companies. The application process is faster and convenient with minimal documentation. Platforms like this perform a soft credit check and allow the borrowers to explain the reasons that led to a bad credit in the past. As long as lenders show confidence in the borrowers’ ability and intention to repay the loan, the borrower will get the loan. These loans are given without collateral based upon the creditworthiness of the borrower alone. However, the borrowers cannot expect a guaranteed funding. They can attract penalties if the EMI repayments are late and attract huge payments in case of a default.

Lenders on the Peer-2-Peer platform in the past few years have seen an average return between 12% and 18% annually. Also, it is a form of passive investment tool that offers great returns against the cash parked in savings accounts. By allowing lenders to invest in loans across a broad range of loan applicants for small amounts of fund, Peer-2-Peer investments offer an in-built mechanism to diversify.


This article was written by Priyanka Singh.

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