In a number of countries across the world, small and medium enterprises (SMEs) are regarded as the backbone of the economy. The story’s no different in Malaysia. In fact, over 95% of business establishments in Malaysia are SMEs. According to The World Bank, these businesses account for 65% of Malaysia’s employment and nearly 36% of the country’s GDP.
With such a sizeable chunk of economic development being governed by SME growth, it’s natural that the Malaysian Government would do everything in its power to encourage such businesses. From a multitude of funding options to easily accessible information, SMEs now have it better than their predecessors. But, with all the information that’s out and about, it’s quite easy for you to be misinformed as well.
This is particularly true when you need to apply for an SME business loan in Malaysia. Whether it’s about the amount of money you can possibly get or your origins, there are a number of myths that surround SME financing. Here are some popular misconceptions when it comes to SME business loan applications:
- Banks aren’t the only option for SME financing: One of the biggest issues that plague SME growth is funding. About a decade ago, most SMEs would head to a bank for all kinds of financial assistance. But over the last decade, a host of alternative business financing options have emerged in Malaysia. These alternate funding options include venture capital firms, the Leading Entrepreneur Accelerator Platform (LEAP), equity crowdfunding (ECF), peer-to-peer (P2P) lending, and SLSME, a government-funded financing scheme. Truth is that some banks may just not be suited to financing some SMEs. This is where alternate financing can lend a helping hand to innovative and early-stage businesses while complementing the banking sector at the same time.
- Getting a small business loan is impossible without perfect credit: Not every business starts off with an excellent credit score. A good score takes a lot of time and effort to build. But, the problem is that low credit scores completely put off most traditional lenders like banks. In such situations, alternate financing options help bridge the gap by opening up new financing opportunities for entrepreneurs. Alternate lenders usually base their decisions on the financial reality of the business rather than the credit score of the owner. Such lenders also look at how long you’ve been in business, the cash flow statement, the type of industry, and the performance of the business before deciding on providing financial assistance.
- Only a bumiputera can get a business loan: Another commonly perpetuated myth is that business loan approvals are restricted to Bumiputeras alone. While some banks do have exclusive offerings and privileges for people of indigenous Malay origin, it doesn’t mean that they’re limited to others. More importantly, if traditional lenders like banks aren’t really helping your cause, you could always turn to alternate financing options – SLSME, LEAP, ECF, or P2P – that look at more business-related aspects rather than your origins.
- Personal loans are better and more easily accessible than SME loans: This point is part fact and part fiction. When compared to the complexities of an SME loan application, applying for a personal loan can seem like a breeze. It may even seem like a viable option if you need a relatively small amount quickly. The problem arises when you need a large amount of money to develop your business. Firstly, the interest rate for a personal loan is predominantly higher when compared to an SME business loan. Secondly, as an SME loan caters specifically to business owners, its lending limits are higher as opposed to the lending limit of personal loans. Lastly and most importantly, the repayment period on offer for an SME loan is longer than the repayment schedule for a personal loan. A longer repayment period means you have more time to clear your debt and more funds to reinvest in your business.
Now that you’re aware of the common misconceptions surrounding an SME business loan, be sure to not let these myths hold you back the next time you’re seeking financial assistance for your business. Additionally, do keep in mind to read the fine print of any loan application thoroughly so you don’t jeopardise your business prospects later.