Everything you want to know about Expansion Financing

What is the meaning of Expansion Financing?

It is often a medium-term source provided by banks and financial institutions. Usually, these loans are used for financing the expansion, diversification, and modernization of projects. This type of financing is also called project Financing and is very famous in Singapore. Expansion Financing – Business loan Singapore can be paid back in periodic installments.

Features of Expansion Financing

Expansion Financing is a term loan and it is a part of debt financing that is obtained from the banks and the financial institutions.

Basic Features of Expansion Financing

Security

Loans provided under Expansion Financing are secured loans. The assets that are financed through the term loans serve as primary security whereas other assets serve as collateral security.

Obligation

The payment of interest and the repayment of the principle on these kinds of Business Loan Singaporeare obligatory on the part of the borrower. Even, if the firm is earning a profit or not, it is usually repayable over 5 – 10 years in trances through installments.

Interest

The interest rate that is fixed on term loans is negotiated between the borrower and the lender at the time of dispersing the loan.

Maturity

The maturity period of expansion financing lies between 5 to 10 years and the repayment, as usual, is made in installments.

Restrictive Covenants

In addition to asset security, the borrowers are asked to maintain a minimum asset base and not to raise additional or existing loans. However, these restrictions are not found in financial institutions like Capitall.

Convertibility

These expansion loans can be converted into equity according to the terms and conditions laid down by the financial institution. It can be done even at an option.

Advantages of Expansion Financing

Expansion Financing is one of the famous types of Business loan Singapore and also one of the most important sources of project financing.It is a cheaper source of medium-term financing.

Tax benefit

The interest that is liable on loan is tax-deductible expenditure and huge tax benefits are available on interest.

Flexible

Expansion Financing is negotiable loans between the borrowers and the lenders. The terms and conditions on these types of loans are not very rigid and it provides flexibility.

Control

These types of loans represent the debt financing and so the interest on the equity shareholders is not diluted.

4 best steps in financing your business the Expansion Financing

If you are in the idea of expanding your current business, like adding a retail location, or expanding your product line or even changing the direction of your business model, it means that your business is healthy with great finance and a great customer base. It also means that you have outgrown your current physical space or the demand for your goods or services. However, it is always better to be careful while you taking a new step. Here are 4 best steps in financing your business with Expansion Financing.

Make sure that Expansion is the best decision

Keen observations made on the current business of yours can have a new perspective on the expansion of the business. It will help you to discover and determine, is expansion now a good choice or not. You have to understand the fact that the success of your business at the current location cannot help you so much on how it is going to be in the new location.

It is very important to research your target customers in the new locality. You should also have exact knowledge of how your business will work if you are not around. If your presence is not very important for the new location or the old location, then it is not a problem. So there are a lot of things to research and evaluate before deciding. You can approach a business mentor to help you out in making a decision.

Forecast and know the cost of Expansion

You have to deal with the associated costs of expansion to determine the capital requirement from the financial institution, Capitall. For example, if you are up to the retail expansion, then you have to look for leasing space, building out the new location, hiring staff, additional inventory and many more. It is time for a break-even analysis to determine how much profit the new expansion would reap.

Make use of the past balance sheets and revenue statements from your existing location and forecast how the operations would take place in the new location. It will also help in arriving at the breakeven point. Also look for the hidden costs, if any. Once you have completed the forecast, you can be confident about the amount you need to apply forabusiness loan Singapore. You can also better explain the lenders in the financial institution of Singapore, the Capitall.