One of the problems for most businesses is working out a strategy to approach the bank for a loan. Businesses often try to finance their operational requirements with debt. The most important criteria in getting a fixed asset loan, is to convince the lender that the loan would be helpful to the business in the long run and would generate additional profits.
The bank or lender will determine your credit worthiness by examining your:
- Long-term business prospects
- Cash flow
- Profitability
- Capital structure (debt vs. paid-up shares)
The bank or lender will also consider other qualitative factors such as:
- Transparency of your business operations
- Credibility
- Integrity of the management
Duration Of The Repayment Period
- Fixed Asset Loans are usually long term and the repayment period may range from 1 to 10 years.
- Every month or quarter, the borrower repays part of the principal sum borrowed and part of the interest due.
Terms And Conditions
- The loan amount varies with the value of the item being purchased.
- The repayment duration for the loan is based on the bank's assessment of the time it would take to generate profits.
- The interest rate is usually fixed for the entire duration of the loan. This would benefit in deciding the cash out flow needed to service the loan.
- In certain cases, the lender would require a personal guarantee or additional assets to secure the loan. It again depends on the lenders assessments of the borrower’s credit worthiness or the ability to pay back the loan.
Singapore Governments Role In Providing Fixed Asset Loans
The Singapore Government has come up with the Local Enterprise Finance Scheme (LEFS) as part of itsinitiative in providing fixed assets loans. The scheme offers loans up to S$15 million, provided the enterprise is a locally owned company with 30% local equity. The enterprise can use the funds for automating and upgrading factory and equipment and/or purchasing factory and business premises. To apply for LEFS please visit Local Enterprise Finance Scheme.
