As an entrepreneur, one of your most important roles is to make strategic financial decisions for your company. There may come a point in your entrepreneurship journey where you consider tapping into a business loan whether it’s during the high or low seasons of your cash flow.
For example, you may see a viable opportunity for your business such as setting up an outlet at a great location that just opened up and a business loan gives you the working capital you need to achieve the goal. On the other hand, a business loan gives you the financial support to weather an uncertain period or cover operational expenses as you wait for your clients to pay you.
No matter your reason for getting a loan, choosing the right loan according to your needs is critical. Here are some common types of business loans in Malaysia.
Types Of Business Loans In Malaysia
Government-Assisted Loans
Bank Negara Malaysia provides various types of financing at an affordable cost to SMEs in different sectors. Some of the financing include the SME Automation and Digitalisation Facility, which provides up to RM3 million financing to business owners with a tenure of up to 10 years. To be eligible for the facility, businesses need to be SMEs with at least 51% shares held by Malaysians.
Bank Negara Malaysia also offers Disaster Relief Facility to business owners who are affected by natural disasters such as floods. This facility is available to both SMEs and micro-enterprises. SMEs can apply for up to RM700,000 financing while micro-enterprises can apply for up to RM150,000 at a maximum financing rate of 3.5% p.a.
The funds are disbursed through financial institutions listed on Bank Negara Malaysia’s website. Business owners can approach any of the participating financial institutions and make an application.
Working Capital Financing
Aside from government funds, business owners can apply for a working capital loan, with a bank to finance their day-to-day operations. The bank provides business owners with a lump sum of cash up front, which business owners will then repay based on an agreed payment schedule and other terms.
One of the more common business loans, entrepreneurs can get a working capital loan without collateral. Due to its easy accessibility, working capital loan is suitable for SMEs who need additional funds for short-term needs.
The OCBC BizFinancing provides business owners with financing of up to RM600,000 without collateral for a tenure of up to five years.
Commercial Property Financing
If you’re thinking of purchasing a premise such as a factory or office building, you can tap into commercial property financing to fund the purchase.
When you apply for commercial property financing, the property is put up as a collateral to secure the loan and guarantee its repayment.
Depending on the financial institution, you can get very high financing margins and commercial property financing usually comes with longer repayment periods.
For example, the OCBC Commercial Property Loan provides financing that extends up to 140% of the property value or purchase price to companies, with a maximum tenure of 30 years.
Equipment Financing
Another type of similar financing is equipment financing to fund the purchase or leasing of machineries, industrial tools and even vehicles for your business.
The equipment is used as a collateral to secure the financing. Business owners can get a high margin of financing to buy heavy machineries and other equipment required.
Invoice Financing
Invoice financing is also a form of collateral-backed financing where business owners can use unpaid invoices to secure a short-term loan for your business needs.
Sometimes, when business owners are selling to other businesses in bulk amounts, they may not receive payments immediately and have a lot of unpaid invoices, which can tie up funds for running your business.
You can apply for invoice financing to pay for business expenses like employee’s salaries before your client pays you.
Business Overdraft
A business overdraft is a line of credit which allows business owners to pay with their current account even if the payment exceeds the balance in the account.
Similar to how credit cards work, a business overdraft lets you draw on a set amount of credit at any time your business requires it. Once you repay the amount due, your credit limit will reset.
For overdrafts, business owners need to apply for the facility once and can access it with a limit after at any time. This provides business owners with the flexibility to get funds for their daily operations as and when they need it.
Shariah Financing
Shariah financing is a type of financing that is compliant to Islamic laws. There are many types of Shariah financing including working capital financing, property financing and overdraft.
Shariah financing prohibits activities like ‘riba’ and ‘gharar’, which translate to increasing of debt until repayment or excessive compensation. Instead of charging interest, Shariah financing operates in a way where the bank and borrower share the profit and loss.
How To Apply For A Business Loan?
Getting a business loan can be beneficial to your company provided it’s used in the right way. Before applying for a loan, make sure that you have a solid plan on how to use the money to support your business and calculate if you’re able to make repayments.
It is also important to make sure that you’re getting the financing that best suits your business needs. You may need to prepare some of the following basic documents for the application of a business loan.
- Photocopy of identification documents
- Company’s bank statements and audited financial reports
- Income tax returns
- Proof of purchase of property or equipment for collateral-backed financing
Typically, you can apply for a loan online by submitting some personal details in as fast as 10 to 15 minutes. The bank will contact you after for further confirmation.
Read Also: Guide To Government Grants For Malaysian Businesses To Expand Overseas
Follow Us On Telegram & Instagram!
Join our Malaysia Telegram channel (@dollarsandsensemy) and follow our Malaysia Instagram Page (@dnsmalaysia) as we bring you the latest finance content in Malaysia!
