Sometimes bank will approach SME business and offer a small loan for their business when they do not need this money, the business owner will start asking whether they should take it.
Here's are my advice.
Take it :
Here's are my advice.
Take it :
- If this loan can helps you to generate additional business. Make sure the profit is sufficient to cover the interest and other associated costs (legal fee, and stamp duty, CGC guarantee fee).
- If the interest rate of this loan is lower than any of your existing facility so that you can have some savings from using less of your existing facility.
- If you foresee that you may need the money in near future to finance your increasing sales or anticipated new contracts.
Do not take it :
- If you do not know what to do with the money for time being and do not foresee any new business or contracts coming. Normally there is a fixed cost associated with this loan, eg. legal fee and stamp duty, and CGC guarantee fee. I do have clients who took up bank facility but did not in any way increase its turnover and the these costs eat into his profit.
- If you intend to use the money for a new business which is not related to your existing business or do not complement your existing business.
- If you intend to keep the money for personal use.
Some business owners regretted for not accepting the loan when their subsequent application was rejected by banks especially when the business environment gets tougher. In fact, they should be happy that the loan was not taken up since it is more difficult to make money now to repay the loan.
