Term Loans for Business
There are two kinds of loans short term loans and long term loans. Generally loans that are
repayable within 12 months are classified as short term and loans that are to be repaid in
tenor beyond 12 months are classified as long term loans.
Though term loans are common in both personal and commercial segments the difference is
that in personal segment the repayment and corresponding loan quantum is decided by the
present income whereas in commercial loans the repayment and corresponding loan
quantum is decided based on the future income potential of the asset(s) being acquired.
A term loan in business segment is used for creating long term assets like building and plant
and machinery that aids in the process of manufacturing or helps the business. The
requirement for capital assets is different for different businesses for example a phone
manufacturer will have significant requirement for building and plant and machinery whereas
a retail trader of phones may have minimum requirement. The requirement for building and
plant and machinery also varies as per the size of the business, the bigger the business the
more the requirement.
Term loans are precisely used to aid purchase of these long term assets. A depreciation is
charged every year as an allowance for wear and tear of the asset used in the business
sales. Generally business term loans are provided for a tenor of up to five or seven years
based on the income generating potential of the asset being acquired. There may be
significant deviations between the future potential of the project as assessed by the bank
and as projected by the promoters as banks prefer a cautious approach thereby limiting the
quantum of finance available for the project.
Term loans for commercial projects carry differential rate of interest based on the tenor of
the project and the rate of interest may be fixed or floating. The eligibility for term loan for
commercial projects is arrived at by computing the debt service coverage ratio (DSCR) and
security margin coverage. These ratios are calculated after arriving at acceptable cash flows
for the tenor of the loan. While DSCR ratio indicates the repayment capacity of the unit vis a
vis the profitability and cash flows and the security margin coverage ratio indicates the
available security against the loan balance outstanding at each stage of the loan tenor.
The bank may reduce the scope of the project or insists for more margin from the promoters
in case it differs on the profitability prospects of the project.
Licensed Moneylender in Singapore – Singa Credit Pte Ltd
Established in 1992 and previously known as Yong Seng Credit,
Singa Credit Pte Ltd is Licensed Moneylender in Singapore regularly updated with the latest regulations to be in line with the requirements set out by Registry of Moneylenders.
Please feel free to call 66946166 for more info on our lowest interest rate in Singapore or walk in our office 470 North Bridge Road #02-01 Bugis Cube Singapore 188735.