FINANCING THE JOUR NEY
WITH the advent of the Fourth Industrial Revolution, Malaysian businesses have more financing options than ever, with banks and the government focused on supporting the SME sector.
That said, small and medium enterprises (SMES) must understand the different stages of a company’s life cycle and how to leverage the right financing instrument to suit their needs.
Broadly, there are five types of financing avenues that SMES can look into, namely, government grants, angel investments, venture capital, crowdfunding and equity crowdfunding, as well as bank financing facilities.
Young businesses that have been in operation for under three years typically do not obtain funding from banks due to insufficient track record. Such companies can consider government grants as an option to kick-start their businesses.
Sectors such as green technology and assistance for the differently-abled are among the programmes available for grants, with soft loans and a host of other incentives earmarked for SMES.
However, it may be difficult to obtain such funding owing to stringent and rigid requirements. Additionally, those who are eligible may have to endure a lengthy process before the funds are disbursed, which may affect the life blood of a company – its cash flow.
Angel investment and venture capital can be another option for young companies to consider. Angel investors, who are usually high net worth individuals, invest in early-stage companies. Venture capitalists, on the other hand, are corporate entities or a group of individuals that invest in the company under the same premise.
Angel investors and venture capitalists invest in a company in exchange for equity or ownership in the company and sit on the board of directors. As such, they often exert strong influence over the company’s future business direction and strategy, which does not bode well for some business owners.
In recent years, newer forms of financing for SMES have arisen, including crowdfunding and equity crowdfunding. These are quick and effective means to finance new ventures or undertake new projects at relatively low cost.
Both crowdfunding methods require setting a goal for the amount of money to be raised and stating a clear aim on the use of funds, to encourage the public to pledge funds to support the cause.
While convenient, crowdfunding is used mainly as a way to raise smaller sums or for specific projects, meaning that it may not be suitable for long-term business dealings. In the case of equity crowdfunding, just like angel investment and venture capital, it also comes with a larger number of stakeholders.
For seasoned businesses, however, the most common avenue of obtaining funds for growth is still the financing facilities offered by banks. This is because they can approach a number of banks that provide flexibility in terms of financing amounts, rates, repayment tenures and additional benefits.
Among the options they can consider is the CIMB SME Quick Biz Financing/-i, which provides working capital financing without collateral to improve the company’s cash flow.
The CIMB SME Quick Biz Financing/-i enables eligible SMES to apply for financing of up to Rm1mil via a hassle-free application process with minimal documentation.
Another solution is the CIMB SME Biz Property Financing, for SMES keen to finance the purchase of properties, undertake refinancing, or obtain working capital for the growth of their businesses. The facility provided unlocks the value of assets and put the resources to productive use.
These financing facilities are open to all Malaysian-owned SMES that have been in operation for a minimum of three years.
For more information, visit https://www.cimbbank.com.my/en/ business/products/sme-banking/ sme-financing.html
This article is the second part of a special series focusing on SME financing, courtesy of CIMB Bank.