Trade loans are kind of short-term loans with better terms and conditions. It is said because they have limitations to specific import or export transactions. Trade loans work as fully revolving credit facilities, which help fund a business between the time it has to pay for the purchased goods, and the time when the firm receives the funds from the sale of those goods.
So, regardless of your business and plans, you can always apply for a trade loan in Singapore if financing is required to keep it running smoothly.
Common uses of trade loans
Trade loan is also a technique of financing mostly approached by traders like manufacturers and wholesalers. It is used for increasing the workforce and also purchasing of inventory.
Costs that you need to consider
You might need to calculate the costs as in whole. The cost will include interest rate plus other fees and charges implied by the lender or mortgage broker. The lender may also charge administration fees depending on the size or risk of your business and trading. You should also consider the cost of other trade products that might include documentary affordability.
Pros and cons of trade loan
If you’re planning to apply for the trade loan, the one thing that you should know is benefits and drawbacks. Yes, they vary from business to business but it can be essential information for you.
- It allows any firm to pay suppliers while gaining extended credit terms.
- It is suitable for the trading cycle too.
- It will help firms to enhance their reputation by making quick payments.
- If your customer is in need of funding, it also offers transaction specific financing resulting in a reduction to their overall borrowing cost.
- Customers can extend their working capital by using trade loans and pay letters of credit at sight.
- The major benefit is that it is available in almost all currencies.
- As a trade loan is a sort of short term loan, interest charges can be higher than any other type of loan.
- As with other types of debt, if the loan is secured on the goods being purchased or on other security, and the business fails to repay, the lender may take action to seize the security provided for the loan
- Defaults on loan repayments can lead to a fall in credit score, increased interest rates for existing and future loans, chances are more for collateral being seized and other legal events against the corporation. Firm directors may also be affected, liable on how the loan was regulated.
However, there are the major points that you should be considering before applying for trade loans in Singapore. Homework for anything is necessary. You know the condition of your trading, future plans and strategies you hold for the firm. So, keep all these factors in mind and never forget to take legal advice on the matter. Legal individuals might have better know how on the subject than anyone else.