Secured Vs Unsecured Credit Facilities

By: Joyce TM Leong

Compared to equity financing which needs a period of up to 12 months if you are listing your company for a first time, debt financing is a way to gain quick access to funds. Other reasons why equity financing is ruled out could be due to stringent criteria required on companies to be listed and directors' reluctance to dilute their shareholdings.

Companies can choose between secured and unsecured debt financing. Secured overdrafts would require the companies to pledge collateral in the form of cash or property. Unsecured overdrafts do not require any collateral but the credit line granted out is subjected to yearly reviews. Both credit faciltiies would require the personal guarantees of all directors. Business overdraft facilities serve as a safety net that your company can utilize during emergencies. The interest rates are much lower than drawing down on your personal credit cards.

Secured overdrafts typically have a lower interest rate, higher loan quantum as well as a potentially shorter loan tenor of up to three months. You can pledge assets such as cash, property, stocks, bonds, debentures etc. If property is being used as collateral, bankers typically look at the location of the property, whether it is fully paid up as well as the current market value. Depending on the type of collateral pledged, the loan quantum granted out can be slightly lower or much higher than the market value of your collateral.

Alternatively, consider the unsecured business installment loan which offers you interest rates that are comparable or even lower than what your local business financing assistance bureau is offering. In addition the loan quantum granted out by financial institutions is four times more. The loan application process of most financial institutions today is fast and hassle-free. The loan can be approved as fast as 24 hours and the funds are available for your usage immediately. In addition you are free to use the funds for working capital, purchase of fixed assets, payroll financing etc.

To be eligible for these credit facilities, companies have to be in operations for at least three years. The company directors must have a minimum of two years of relevant working experience and at least one director is aged between 25 and 60 years of age at the point of application. Lastly, the business must not be involved in certain high risk industries such as arm manufacturers and casinos. To learn how debt financing can help you to grow your business, speak to your banker today.

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