- Some SMEs may have the perception that taking on a business loan can negatively impact the health of their business, especially with the COVID-19 pandemic
- However, business loans could provide multiple benefits to SMEs, providing them with cash flow for short term costs like rent and staff salaries to financing inventory and even machinery purchases
- SMEs can access government-assisted loan schemes such as the Temporary Bridging Loan and Enhanced Working Capital Loan via UOB Bank
With the uncertainty in the global landscape brought about by the Covid-19 pandemic, businesses are facing an unprecedented crunch due to the slowdown in economic activity and the prior containment measures. This has curtailed many plans and could be one of the reasons that some SMEs are on the fence about taking on loans to sustain their business as they fear taking on debt.
However, a business loan, as long as it is used judiciously and with careful planning, can be a strategic tool to help the company manoeuvre in the long term. As of July 2020, more than 7,600 SMEs in Singapore have taken on loans of about S$71million1 to boost their defence against the impact of Covid-19. Here are some ways a loan can help businesses:
Buffer short term cash flow needs
Unexpected events can arise that can catch us off guard, and the Covid-19 pandemic is a prime example. While the government has supported SMEs with the Unity, Resilience, Solidarity and Fortitude Budgets, the economic backlash faced by businesses has led to many SMEs struggling with their cash flow.
In this instance, business loans can serve as a timely and useful injection of liquidity to help SMEs sustain operations, especially for rental and staff salaries2, until the storm has passed. While this is not common practice, they provide a measure of temporary relief during these unprecedented times as the business re-strategises.
Be prepared for the market when it recovers
For many SMEs whose core business lie in manufacturing, production or logistics, they are heavily dependent on hardware to deliver their product. While the current crisis is far from over, companies need to plan and prepare for the demands of a revitalised economy so that they can seize the opportunities when the market goes on an uptick.
With a working capital loan, SMEs can purchase or upgrade equipment, and also maintain an optimal level of inventory to meet demand when it returns. When SMEs are confident that they have ready funds at their disposal, they are able to meet any opportunities that come their way.
Build credit history
Contrary to common belief, having a credit history actually strengthens your financial standing and a good credit history will help increase your chances of getting a bigger loan in the future. A good credit report checks off one of the key criteria banks use in their loan assessment and ensures a smoother process when you next apply for a business loan.
Capture new opportunities and create new revenue streams
The Circuit Breaker containment measures were painful to many businesses. But some discovered opportunities and leveraged on the Temporary Bridging Loan1 to remodel and diversify their business so that they could take advantage of the new demand created by this crisis.
One such company was Hygge1, whose shop in Haji Lane was patronised primarily by tourists. Due to the travel restrictions, their business was badly hit, but they shifted their business online and invested in digital marketing to create new revenue streams.
With the rise of the digital economy, more and more businesses are aware of the need to diversify their revenue streams. And to seize these opportunities, businesses need to have sufficient capital on hand. This is where a business loan can serve as a strategic tool that can provide an SME owner with options and the ability to explore innovation and growth.
Apply for a UOB Business Loan today
At UOB Business Banking, SMEs are the core of our business. As the Covid-19 situation continues to play out, we want to help support companies as they plan their next steps to recovery.
If you are a sole proprietor, under a partnership, or in a Private Limited Company with at least 30% local shareholding, and your company is registered and operating in Singapore, you can apply for the government-assisted UOB Business Loan (including the Temporary Bridging Loan and Enhanced Working Capital Loan) at a preferential low interest rate. No collateral is needed, and the Bank will respond within one business day. Terms and conditions apply.
Delegate Exclusive Promotion:
Due to the covid-19 pandemic, large-scale events are no longer being allowed to take place, resulting in event businesses struggling to cope with the abrupt changes. The events industry includes many aspects of businesses- from planning to coordination, that will undoubtedly be affected by this situation. Business loans are great for event businesses to help to cushion the overall business cash flows from being susceptible to uncontrollable situations like these.
With greater flexibility during these unprecedented times, the events industry will be able to persevere and recover with the help of business loans. This would allow your businesses to continue operating as usual, even with its limitations.
Receive $100 worth of Takashimaya vouchers upon disbursement of a UOB Business Loan. Enter promo code ‘Delegate2020’. Terms and conditions apply.
Source: UOB Business Banking Insights © Reproduced with permission. First published on July 20, 2020.