The comprehensive guide to financing options for businesses

Almost 50 per cent of small businesses fail within the first five years, and a primary reason is lack of sufficient capital. Small and medium enterprises (SMEs) are historically vulnerable, many only one disaster away from closing their doors forever. Because their cash reserves are not as deep as enterprise-sized companies, SMEs often don’t have the financial means to weather a storm of any sort. Cash flow issues, in addition to the tremendous stress of financial management in an unstable economy, can lead to many challenges for some smaller businesses. However, there are ways to get through these temporary financial challenges.

Loan Options

There are many loan options available in Malaysia for small and medium-sized businesses to get the cash they need to succeed. First among these are traditional bank loans such as working capital solutions from UOB. With a variety of short and long-term loan options, bank loans can help your business stay liquid and accelerate growth. These commercial loans are typically available to established businesses with a track record of success.

Malaysia-based businesses also have the opportunity to take advantage of many other loan programs backed by Bank Negara Malaysia (BNM). Direct financing schemes through the BizMula-i and BizWanita-i caters to start-up companies with less than 4 years of operation under the BNM Fund for SMEs – All Economic Sectors (AES) Facility. It was designed to improve working capital by assessing funds to automate and upgrade factories and equipment. These loans can have terms of up to five years at attractive interest rates, tailored for small businesses like yourselves.

Unfortunately, new SMEs are not always successful in getting approved for financing solutions, due to a variety of reasons such as lack of financial history and lower credit scores of these companies. As a result, acquiring loans from banks can be a challenge, especially with uncertain revenue. However, for SMEs without prime credit scores or without steady revenue, bridge loans from smaller lenders are still an option. There are also business consultants such as imSME that can help businesses source for the most suitable loans based on factors such as the company's financials, the amount required and repayment periods.

Government Grants 

The government offers a grant program – SME Business Digitisation Grant, that is designed to assist SMEs with fundings for digitisation of businesses. The available grant supports the provision of technology solutions aimed at process improvement and product development. The current program provides funds to propel SMEs into the digital world through digitisation of business operations, and the adoption of e-commerce and digital marketing.

This grant, overseen by the Ministry of Finance, is a joint effort with Bank Simpanan Nasional, SME Bank and Malaysia Digital Economy Corporation (MDEC). It is available to Malaysia-based SMEs with the desire and potential to grow and move rapidly in the technology sphere. Grants, unlike loans, do not need to be repaid. They are an expression of the government’s initiative to support the growth, capability upgrades and innovation of its local companies.

Leveraging Overdrafts

Perhaps the simplest method of ensuring emergency funding is available is the arranged overdraft. Typically, this involves making arrangements with your bank to allow overdrafts on your current account up to a specific amount. With flexible repayment schedules, you only pay interest on the amount you use, and the funds are always available when you need them.

Most major banks offer some form of arranged overdrafts. A source of quick stand-by funds, overdrafts are typically available to all businesses incorporated in Malaysia. Overdrafts, however, are costly with high interest charges based on the amount used, calculated on a daily basis. In addition, the application process is quite tedious as the bank requires several types of documents such as bank statements, financial statements, even at times, the business plan of the company.

Acquiring Capital on peer-to-peer (P2P) Lending Platforms

Crowdfunding sites, or P2P lending platforms, have become a popular option for acquiring the capital needed for growth and expansion. The term crowdfunding refers to internet-mediated registries where a project or venture can be funded by raising small amounts of money from a large number of people via the Internet.

In Malaysia, one of the leading digital lending platforms is Funding Societies. This platform allows SMEs to raise funds from individual investors who, in turn, earn money from their investment through interest on the loan. This type of funding is typically faster and easier to apply and get approved. While costs might be slightly higher, they are still attractive, compared to more traditional methods of funding such as bank loans.

Invoice Factoring Options

Late payments from customers poses a huge risk for SMEs in Malaysia. This causes problems as the needed funds to run the business aren’t available until customers pay their bill. Often, unpaid invoices represent an amount that could keep your business liquid if only they were paid. At times like this, it may be worth exploring invoice factoring services like Bibby Financial Services. Invoice factoring services offer loans against the unpaid balance of outstanding invoices so that you have the cash you need immediately.

Most services apply a single, transparent fee rather than imposing interest on the loan and they get paid when you get paid. With invoice factoring, you don’t have to wait for that big invoice to come in to get the funds you need to keep your business running.

Equity Financing

Equity financing is the process of raising capital through the sale of shares in an enterprise. Equity financing essentially refers to the sale of an ownership interest to raise funds for business purposes. Unlike crowdfunding, equity financing is not a loan. Investors purchase a share of the business and thus a share of the profits going forward.

This type of financing is usually reserved for larger enterprises listed on various stock exchanges, but these days equity financing is available for SMEs and startups as well. Fundnel, a private investments platform for unlisted securities in growth stage & pre-IPO companies, democratises the way investors seek opportunities in private markets, and helps best-in-class unlisted companies raise capital efficiently.

Credit Cards as Cash

Finally, there is a way to bridge the gap between cash flow and revenue in a quick and safe fashion, without relying on an unfamiliar lender or selling equity in your business. CardUp offers you an alternative to short-term bridge loans by allowing you to use the credit card you already have to pay your suppliers - even if they don’t accept credit cards. Any payment you make via cash, cheque or bank transfer (e.g. rent, payroll, supplier payments, etc) can be charged to your credit card, with no need for your recipient to be onboarded.

This means you can use your existing credit cards to extend your business payables by up to 59 days with zero interest. This allows you to free up your cash on hand for other purposes, such as acquiring more products or for growing the business. You will also be paying your bills on time or even earlier, taking advantage of early-payment discounts from your suppliers. 

Summary

Anyone dealing with cash flow issues in SMEs understands the tremendous stress they place on your business’s ability to grow and increase revenue. Often these cash flow issues are no fault of yours, and are instead due to late or slow payment by your customers. Whatever the reason, if you’re in charge of the financial health of a Malaysia-based business, there are emergency lending options that can work for you. Whether you want to make it simple and rely on your credit cards to extend the cash available to you, or go through the lengthier process of acquiring an emergency loan, you have options to get the cash you need to bridge your financing needs.