Land, labour, and capital are the three main pillars of production. Among them, capital is the one thing that SMEs must constantly have a supply of to sustain themselves in the market. There are many ways to secure the funding necessary to maintain daily operations, one of which is property-backed loans, a form of asset-based lending.
Most small-business owners and entrepreneurs often rely on unsecured business loans to get their funding to operate. Still, these loans generally come with high-interest rates that can prove challenging to repay. In contrast, property-backed loans or home equity loans in Singapore offer a great alternative to those looking for better loan terms without steep interest rates. Below, we dive into the details about the benefits of such loans and how they can be advantageous for SMEs.
What are Property-backed Loans?
Property-backed loans are essentially a form of Loan Against Property. It is a secured loan that requires borrowers to offer residential or commercial properties as collateral to get approval for the loan. Financial institutions that provide this type of loan give a percentage of the property value as the loan amount, reaching up to 80%. This is commonly referred to as LTV or Loan-to-Value ratio. This loan boasts lower interest rates than standard market rates since it is secured with a collateral asset that the lender can use to recoup the losses in case of default.
Benefits of Property-backed Loans for SMEs
1. No restrictions on the usage of the loan
One of the most significant advantages of property-backed loans is freedom regarding loan usage. Borrowers can use it to purchase or upgrade business machinery equipment, open new branches, pay off liabilities, and more.
2. Affordable interest rates and more straightforward documentation requirements
When applying for a loan, every borrower considers two key factors: the equated monthly instalment (EMI) and interest rate. If the EMI burden is too high, it often leads borrowers into a debt trap.
Interest rates for property-backed loans are generally lower than commonly available business loans, which means borrowers can quickly repay the amount without the risk of compromising their usual business expenses. Furthermore, compared to business loans, financing companies do not require a cumbersome number of documents for property-backed loans, and they only need minimal documentation for the most part.
3. Longer repayment tenures
Lenders in Singapore generally offer long repayment tenures for property-backed loans, around 25-30 years. Hence, the longer the tenure, the lower the EMI will be. Small business owners thus have plenty of time to repay the loan. Also, if they make significant profits during the repayment period, they have the opportunity to prepay or pay off the full amount much faster.
4. Quick access to funds in case of emergencies
Emergencies, such as equipment breakdowns, can require funding to prevent significant losses. Lenders that offer property-backed loans know the urgency of such situations and thus make it easy for borrowers to qualify. In addition, they work to release the loan quickly, typically within 1-2 weeks, depending on the case’s complexity.
Although business loans are popular among many business owners today, they are not always the best option for entrepreneurs and SMEs looking for funding with more feasible terms. For those looking for a better alternative and liquidity of funds, it should now be clear why property-backed loans make for an excellent choice.
At OxProp Capital, we provide innovative and reasonable financial solutions such as property mortgage loans in Singapore to help clients get the support they need to succeed. Contact us today and take the first step towards making your ambitions a reality!