Financing-Options-for-Business-Owners-in-Malaysia

The cost of establishing a business in Malaysia can be as high as hundreds to millions of ringgits. Business owners may need to consider equipment expenses, marketing, personnel costs or business registration costs. Apart from the initial capital for company incorporation, business owners may also need additional funds along the way, such as funds to finance larger business projects or overcome difficulties in day-to-day operations.

Fortunately, there are several ways to raise funds for their business goals. This article highlights six main ways business owners can fund their business in Malaysia.

Personal Loan

Personal loans might not be the first financing method business owners may think of, but they can be a great way to quickly get a small amount of capital. They are suitable for micro-businesses that do not require large amounts of capital, such as food truck businesses or home bakeries.

Business owners intending to opt for a personal loan must have a good credit score and a stable income history. These loans are often easier to obtain than corporate loans, which may only qualify businesses that have been running for several years. Certain loans also release funds within one business day, which is very helpful during emergencies.

The caveat of this loan is that its lower financing limit is between RM 50,000 and RM 200,000. The limit may depend on the company’s income. It also tends to have relatively higher interest rates than corporate loans. Also, self-employed business owners can find it difficult to qualify for this loan.

Business Loan

Business loans are more difficult to obtain than personal loans. Businesses may need to be in operation for several years to qualify for it. They may also need to provide a guarantee to qualify for more funding.

Moreover, there are certain restrictions on the funds received. For instance, a company may not be able to use them to buy real estate investments or stocks. On the positive side, business loans can raise a large amount of money, from RM 10,000 to several million ringgits. Still, the funding limits depend on the business operations and if the company offers collateral. They also charge an annual interest rate of about 5% to 7% per year, which is generally lower than the personal loans’ interest rate, which can be up to 18% per year.

Crowdfunding

Crowdfunding raises funds via a large number of individual investors. Crowdfunding comes in various types, including reward-based, donation-based and equity crowdfunding.

Fundraising through crowdfunding can be easier than fundraising through grants and bank loans because its qualification requirements can be less stringent. Reward-based or donation-based platforms may not even need a history of business operations.

The downside of this funding is that certain platforms will refuse to disburse any funds if the business does not reach a set funding, even after it has spent money, time and effort into creating its campaign.

Schemes and Grants

Government or corporate programs can provide a large amount of funding, grants, or networking and mentorship opportunities with little to no interest. Nevertheless, every funding program has a set of qualifications. Some programs are only available for particular companies or demographics. Moreover, certain grants may be competitive and require multiple rounds of assessment before the application is accepted.

P2P Lending

Peer-to-peer or P2P lending, also known as debt-based crowdfunding, refers to investors raising funds to lend to companies. It has a lower financial and operational qualification requirement. Hence, business owners who are not qualified for a business loan may opt for P2P instead. It also provides fast financing for businesses that borrow a small fund.

However, P2P platforms often charge a higher interest rate than banks, up to about 18% per year, since investors expect higher returns in place of higher risks. These charges are in addition to the fees that the platform itself charged, which can be a percentage cut of the loan.

Angel Investors and Venture Capital

Angel investors are high net worth people who invest their money in early-stage companies. On the other hand, venture capitalists are individuals or companies that provide funds to businesses with high growth potential.

Angel investors and venture capital can have huge benefits for start-ups. They can offer a great deal of funding, guidance, or networking opportunities. Business owners may not even have to repay if their business fails. However, they are often competitive. Entrepreneurs must show that their business or ideas have decent long-term growth possibilities.

Getting Help From Financial Audit Firms in Malaysia

A professional financial audit firm helps business owners perform thorough financial audit procedures to inspect the company’s financial statements. The information gathered can be utilised to demonstrate to stakeholders and potential investors that the company has sound financial practices. Some lenders need an audit to determine the company’s qualification for a bank loan, lines of credit and other loan types.

audit firms in Malaysia

Starting a new business can be an enthralling experience. However, setting up a sustainable business that stays in business for a long time requires much more than business acumen; business owners need to practice good financial habits from the establishment’s outset.

Still, managing cash flow can prove hard even for seasoned business owners with experienced financial experts on the board. New entrepreneurs and small business owners are even more vulnerable to poor cash management. This article highlights what you need to know about the impact of personal financial habits on your business’s success and what habits you should have instead to ensure business success.

How Can Personal Financial Habits Affect Your Business?

A. Business Profits Are Essential For Growth

When business owners gain profit from their business, they will obtain new capital that they can use to grow and bring their business to its fullest potential. When their business expands, they will obtain another new earning potential. However, suppose they keep spending all these revenues on personal things without thinking of saving money or reinvesting the money for company growth. In that case, they will experience stagnation, and the business will be at a standstill or, worse, going under.

B. Inefficient Budgeting Results In Uncertainty

Similar to life, a company’s journey is unexpected. An emergency may happen that needs certain expenses. Hence, business owners need to ensure that they have enough money in the bank to cover such unexpected costs.

Aside from unforeseen emergencies, business owners should have enough savings to cover for maintenance and repair necessary, including the repair of broken equipment or the upgrade of certain software. Business owners with poor financial habits and insufficient budgeting may need to resort to loans, resulting in more company debt.

C. Credit Is Key To A Sustainable Business

Realistically, a business cannot expand and operate from a big savings account. Many businesses run efficiently due to good credit. Whether the business owners plan to build their business with small business loans, using credit cards or other means, their credit is intimately connected to their business.

Business owners with habits of paying late, overstretching themselves and depending on credit to pay bills will not bode well for the company. In addition to hurting their credit score, they will not give their business a solid foundation to stand on.

Best Financial Habits For Business Success

Business owners worried about their financial habits should start changing their habits for a secure business future. The following are some best financial habits business owners should practice.

A. Sort Four Finances Effectively

Before venturing into the business world, business owners should sort out their commitments first. If they juggle payments and find it hard to control their budget, they may fail to maintain good business finance. Hence, they should put their finances in order first and ensure their credit rating is decent. They can seek help from financial experts to ensure they manage their budget properly and more efficiently.

B. Avoid Indulging In Unnecessary Business Expenses

One of the trickiest parts of business purchases is the justification for buying the object. Some business owners may feel accomplished after buying a piece of software for their companies. However, this software may not be absolutely necessary for their business.

Thus, before purchasing any business items, they should weigh the pros and cons of buying the items and determine whether it truly brings tangible improvement to their business. If the items prove necessary, they should always try to settle for a less expensive or affordable solution.

C. Track Everything

Effective budgeting is an essential element of business success. Business owners who always find themselves indulged in impulse buying and cannot control their spending habits should create a budget and track their expenses. This method allows them to get a bigger picture of their available budget for the week or month and forces them to adjust their spending habits according to the budget.

D. Prepare An Emergency Fund

Effective budgeting also includes the ability to put money aside for emergencies. Every business has its peaks and troughs, so planning for these situations is critical to ensure the business can stay afloat amidst unexpected crises.

E. Utilise Available Resources

Knowing where and how to get help when managing personal and business money is important so that business owners know where to turn to when things get tough.

Getting Help From Accounting And Audit Firms In Malaysia

Apart from turning to financial experts, business owners can get help from professional accounting and audit firms in Malaysia to better manage their cash flow. Accounting services are business experts and can advise them on everything, from financial acquisitions to daily business operations. On the other hand, auditors and audit services perform a financial audit to cross-check every detail that goes into the company’s financial accounts to give business owners an actual picture of its financial standing. They also make sure its accounting papers and necessary records are prepared and kept as required by the Companies Act.