Secured vs Unsecured Debt Financing

Secured vs Unsecured Debt Financing
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 facilities would require the personal guarantees of
all directors. Business overdraft facilities serve as a
source of funds that your company can tap into 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 at least two years of relevant
experiences 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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Joyce TM Leong is a consultant who helps companies with
their business financing needs. For Joyce's free Business
Tips newsletter, please visit
http://www.businessfinancingpro.com