• Checklist for Choosing the Right Loan for a Small Business

    If you are planning to start a business in Malaysia, then it is really important for you to find the right funding. If you already are running a business, then you may require a loan to expand your business and profit margins.

    Loans are a great financial tool to help you start or boost your business. Though there are a variety of loans available, you need to choose the right loan for your business. This way a loan would not add extra financial burden on you and your business. Below are questions you need to ask yourself before taking up a business loan.

    How much money do you need?

    First, you need to calculate and decide the amount that you need. This requires careful planning and research. Jot down the cost of running, expanding and managing a business along with your current financial need. Do not depend on estimated profit alone as sometimes it takes a while to start earning a profit.

    Decide on a specific sum that will allow you to manage your business even if you do not see a profit for a couple of months. If you hire people for your business, calculate what you need to pay them as well. Having an estimate is quintessential before you apply for a loan.

    How much will a loan cost?

    Do not go ahead with the first loan offered to you. Compare quotes and interest rates. Some banks offer low interest-rates for a lower financing amount. So do not borrow more than what you need. The previous step of estimating your financial need plays an important role here. Though banks offer a higher margin of financing, only opt for what you require.

    A loan with a low-interest rate is ideal as you need not pay additional money in the form of excess interest. The money you save on interest can be put back into your business instead. Check the effective interest rate of each loan to see the actual amount you would need to pay as interest.

    You can compare interest rates using online comparison tools. Choose a loan that offers the best interest rate that is suitable for your budget.

    What are the fees and charges?

    Any loan comes with additional fees and charges. These include stamp duty, GST and an agency fee if applicable. There is a late payment fee as well. Some loans have an early termination fee in case you decide to settle your loan before the tenure ends.

    Make a note of all the fees and charges that are associated with a specific loan as they go a long way in ensuring affordability of the loan. See whether you can afford to pay those charges. If any loan costs you more in terms of fees or charges to a point where it makes the loan unaffordable, then that loan is not suitable for you.

    What is the loan tenure?

    A short-term loan might help with the immediate need, but you need to check whether you can pay back the loan within a short period of time. But shorter the tenure, the higher would be your monthly instalment. If you are unable to pay on time, this could lead to a bad financial history that can create future financial problems.

    If you decide to go for a long-term loan, you need to remember that you may have to pay more in terms of interest. Later if you want to go for a different loan for a different purpose, your current loan may affect your case for a new loan.

    Decide on the loan tenure based on your financial capability and history. Choose a tenure that will save you money in the long run.

    How to get a loan easily?

    Banks will approve loans for businesses easily only if you present a sound business plan. Banks also require a collateral so be ready to present a collateral if and when required.

    Make sure you have all necessary documents at hand. Make sure that all your legal documents, financial statements and tax returns are in order. It would be easy for banks to evaluate your business and accounts to approve a loan soon. Not providing the right documents will only lengthen the approval process and can also lead to the loan application being rejected.

    Always choose a loan that does not put you in debt. Additional debt will not help you manage your business effectively, and it can affect your personal life as well.

    Loans available for small and medium businesses in Malaysia:

    • Maybank SME Clean Financing-i
    • RHB Bizpower SME Business Loan
    • CIMB Enterprise Clean Loan
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