Is taking a Business Loan
a good idea?
A business loan is a niche financial product, tailored for business owners. You may think it is as straightforward as applying for a personal loan, but it is not.
When first starting a business, you need capital to fund for its inception, capital expenses, operational expenses, suppliers and many more. Some business owners have strong financial backups, where capital can be easily pumped from investors, own assets and savings. During this stage, a business loan is not an option.
The Reasons
Running a business has its ups and downs. To reap a favourable return, there is always a risk to manage. Taking out a loan from a bank is an alternative you can avail yourself for when your business is doing well or on the verge of collapse.
If your cash flow is properly managed, applying for a business loan is practical for these reasons:
To expand operations
To purchase equipment
To purchase inventory
To increase working capital
How much can I borrow?
The loan amount you can borrow for capital financing can range from thousands to millions of Ringgit, depending on your company’s size, annual turnover, business classification and the bank’s assessment criteria.
For example, a Micro SME with a sales turnover of maximum RM300,000 will usually be offered up to RM100,000 financing.
Once the loan amount is agreed upon, your financing will then be assigned with an interest rate that best matches your business risk profile; a higher risk is equal to a higher interest rate, and vice versa.
Do I need a guarantor or collateral?
Typically, a bank will require you to provide a guarantor in the forms of shareholder’s guarantee, provided that your company’s financial standing is not satisfactory.
It is a personal liability by the shareholder to indemnify a lender over an outstanding debt should the business run into financial difficulty.
But there are growing numbers of banks offering unsecuritised business loans for micro and SME businesses that are subjected to the bank’s terms and conditions.
Depending on the purpose of your application, you may or may not require to standby a collateral for business financing.
Get in touch for consulting or advising to all of your questions.