SME Loans in Malaysia 2014
Small market enterprises (SMEs) and entrepreneurs are one of the key contributors to economic growth and creation of jobs. Furthermore, many people are also opting for careers as entrepreneurs because it seems to offer greater financial and psychological rewards than the average nine-to-five drill. Entrepreneurship has also been the solution for the high rates of unemployment of fresh graduates, especially since the last economic recession.
The definition of SME is based upon the sales turnover, the number of staff employed, and the sector or field of business. As of January 2014, the revised definition of SME is a sales turnover of not surpassing RM50 million or employing full-time staff of not more than 200 (as a specific criteria for the manufacturing sector). The definition of SME varies a little for the services sector and other sectors in which the sales turnover is not exceeding RM20 million or full-time employees hired are not more than 75 workers.
Various government agencies and ministries deliver a set of comprehensive programmes to support the development of small/medium business owners(SMEs), which are broadly categorized into “financial assistance” and “business support services”.Some of the types of loans that are available for SMEs in Malaysia are loans for asset acquisition and short term financing for working capital. Asset acquisition is one of the common ways to expand your business. One type of loan useful for acquiring assets such as buildings, land, and vehicles is the Term Loan. It is for a definite amount that has an indicated repayment programme and a floating interest rate. While waiting for the arrangement of larger or longer-term financing, the borrower may choose to apply for interim financing (usually one year), which allows the borrower to meet current obligations by providing immediate cash flow. Another loan option for asset acquisition is leasing. The leasing contract is one in which one party conveys building, land, or equipment to another for a stated time, usually in return for an episodic payment. Leasing enables SMEs to acquire the usage of physical assets without having to purchase it at one go. Industrial hire purchase enables SMEs to buy equipment or machinery to expand their business without incurring high upfront payment.
A business needs working capital (cash available for daily operations of the business) to run efficiently, and this is when short-term financing for working capital comes in handy. Various services are offered by banks to provide extra fluidity to your SME. These include overdraft, revolving credit, factoring, and trade financing. Working capital needs such as payment of utilities, salaries, and purchases is credited by the bank to your account through an overdraft. Take note that the flexibility and convenience of overdraft comes with a price – high interest. The interest is calculated on a daily basis based on the outstanding balance at the end of each business day. Usually, a revolving credit is used to provide short-term finance to meet the working capital needs of the day to day business. This type of credit does not have a fixed number of payments. Factoring is yet another type of credit which enables SMEs to sell their accounts receivable (e.g. invoices) to a third party (called a factor) for a discount. The cash, received in advance, can aid in solving urgent money obligations. Last but not least, another option for short-term financing is trade financing. Trade financing facilities commonly provided are such as Trust Receipts, Letter of Credit (LC), Foreign Exchange Contracts, Bills of Exchange Purchased (BEP), Export Credit Financing, and Bankers Acceptance. The list below will provide you with some examples of SME loans in Malaysia for the year 2014.
SME Government Scheme
The SME government scheme includes term loans, trade facilities, and overdraft which amount from RM100,000 to RM3000,000, and have an interest rate of 4% to 6% per annum. In order to be eligible for the government loan, firstly, you need to have an annual sales turnover of more than RM500,000 but less than RM25 million, and less than 150 full-time employees. Secondly, the shareholder’s fund should be less than RM2 million (including paid-up capital + accumulated profit for all the years). Thirdly, the SME should be Malaysian owned and been in operation for at least 2 years, but less than 7 years. If the company has been in operation for more than 7 years, then the net profit margin for the next 3 years must be less than 3%.
Take note that the loan may take from 3-4 months to be processed. The documents required to apply for the SME government loan are M&A, Complete Form 24, Form 44, Form 49, Annual Return Report (Certified true copy for official application), audited account from the past 3 years, latest management account, banks statements from the past 12 months, latest Debtors and Creditors Ageing Report, photocopied IC of directors, company profile, products catalogue, and certification.
Maybank Government Aided SME Loans
Maybank provides a few different government aided loans for SMEs. One such loan is the Fund for Small and Medium sized Industries 2 (FSMI 2). The minimum loan amount provided is RM50,000 and the maximum amount is RM3 million with an interest rate of 5% per annum (subject to change by Bank Negara Malaysia). The repayment period for this loan is a maximum of 3 years.
Another government aided loan provided by Maybank for SMEs is the New Entrepreneur Fund (NEF) whose aim is to stimulate the growth of small and medium-sized Bumiputra enterprises and encourage business ventures with established corporations. The maximum loan amount is RM5 million with a repayment period of 8 years from the date of the first drawdown. Take note that the 5% interest rate is subject to change by Bank Negara Malaysia.
Young Entrepreneurs Fund (YEF)
In order to encourage more Malaysian youth to become entrepreneurs, the Malaysian government has allocated a special fund called the Young Entrepreneurs Fund (YEF). The objective of this fund is to offer an alternative opportunity to young entrepreneurs in Malaysia in gaining financing to start their new business, and to support the needs of their existing business. The Young Entrepreneurs Fund is based on the Syariah financing concept (e.g. Bai’ Inah, Bai’ BithamanAjil, Ijarah, IjarahThummalBai’, Bai’ Istisna’). The fund provides up to a 100% margin on financing working capital needs such as overhead cost, advertising and promotion, purchases of raw material, stocks and so on. The minimum financing amount is RM20,000 and the maximum financing amount is RM100,000 with an interest rate of 5% per annum. The lenient tenure for the YEF loan makes things a little easier for the youth. The tenure is up to 7 years including an additional one year grace period.
To be eligible for this loan, you must be a Malaysian aged between 18-30 years. The business should be registered with Suruhanjaya Syarikat Malaysia (SSM) under a sole-proprietorship, partnership firm, or Sdn Bhd company. Take note that for a partnership firm or Sdn Bhd company, the youth applicant must hold majority shares of more than 51%, and must be the key decision maker. The applicant should be certified in the entrepreneurship or vocational field. Although, those without entrepreneur or vocational certification could be considered through the acquisition of entrepreneurship training from Centre for Entrepreneur Development and Research (CEDAR); and SME Bank. Start-up firms that have been in operation for less than a year may be considered.
In conclusion, if you’re an SME looking for a loan in Malaysia, you will have no problem finding loans this year, 2014. The Malaysian government has discovered that the main boosters of the country’s economic growth are SMEs and entrepreneurs, and they are willing to provide some fairly decent financial assistance to help businesses start-up and expand.