SME Survival – Personal Loan VS Business Loan
In the business field where time is racing, to seize every development opportunity, capital, connections and vision are indispensable. As an old said, “Starting a business is not easy, maintaining a business is even more difficult”. Financial is always the common problem faced by many small and medium-sized enterprises. When the business encounters storms and needs capital turnover, what factors should be considered when applying for a “personal loan” or “commercial loan”, and how have two strings to your bow?
- Plan ahead is a “key”
Sarah first starts by selling mini cake in her IG Shop. With the increase of orders, she then upgraded to sell in a physical bakery shop. And finally settled in a mall to open a Café. This should be a dream comes true for all bakers! However the nightmare just started! At the beginning, it was just testing the water to earn extra money by interest. It has always been an “one-man band” working model. Sarah is a brilliant baker, but she is not a good accountant. The company’s finance and taxation were not properly planned and managed. When the business expanded, manpower, transportation arrangements and shipments was doubled, and monthly expenses also rose sharply.
Financial problems come fast and must seek foreign aid to survive. Time is crucial. It is because commercial loan need around a month to several months to apply. The company’s capital status, bank statements and inventory records in the past six months are the key to approval. This gives the bank to evaluate the company’s solvency and business risks, which will affect the loan application. Besides, when Sarah asked an accountant to fill in the audit reports for the past few years, as the past accounts were poorly managed and started almost from scratch. The process is complicated and time-consuming, which slows down the progress of the application, and the situation is very unfavorable.
- The winning formula: prepare the “audit report” every year, it is easy to apply for a loan!
Different Choices lead to different outcomes. In response to the recent epidemic prevention policy, Boss Zhang, who is also in the catering industry, are feeling the full brunt of pandemic. He painstakingly runs 3 Chinese restaurants, even with many years of operating experience, he is still stuck in the bottle neck. Fortunately, Boss Zhang has always properly managed the company’s financial planning and tax returns, with the assistance of an accountant to immediately submit the company’s tax and audit reports for the past few years. And it has always had a good credit record, which speeds up the loan approval process and provides faster access to funds to meet urgent needs such as rent and salary expenses. When it comes to tax planning, time is money, and it’s the key to survival when the storm comes.
- Commercial loan vs Personal loan
Companies need capital turnover, generally not few thousand dollars is enough to solve. Commercial loan amount ranges from 100,000 to 1,000,000, and can even reach nearly 10,000,000, which provides sufficient working capital for the company. In addition, the bank understands that it takes time from importing and exporting goods to obtaining income, and special loan programs such as import letter of credit (LC loan) are set up, which allowing companies to use the receipt documents as application documents. Generally, companies that have been in business for 5 years or more and have maintained a stable profit transaction record in the past can obtain an ideal loan amount or extend the repayment period.
On the contrary, the loan amount applied for a personal loan is generally assessed according to the personal salary income, such as a multiple of the applicant’s monthly salary, and the amount is far less than that of a commercial loan. Personal loans may be a temporary emergency, but in terms of company operations, commercial loans are more conducive to long-term development.
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