How to Apply Loan for Small Business in Malaysia

1. Business Loans from Private Banks 

Business loans from private banks are easier to apply for and can be faster than government loans. They often require less paperwork and take less time to process than a government loan.

It’s possible to get a personal loan approved and dispersed in just less than 30 minutes. The average time it takes really depends on your bank, the type of loan you borrow, and the credit score you have.

In addition, private bank loans typically have an unsecured option; this means you can apply without pledging your home or a Fixed Deposit as collateral.

Business loans may not be accessible for all start-ups because of eligibility requirements. While larger start-up companies might have an easily accessible line of credit, smaller start-ups with lower revenue and shorter company operation experience may find it difficult to get funding.

Apart from whether a business is eligible for a loan, there are other factors to consider when you decide where to apply. For instance, the interest rates and fees for private loans are usually higher than those for government loans. On average, financing rates range between 6% and 12%-or-more per annum; meanwhile, government loans typically offer lower rates.

2. Government Loans 

Start-ups can look to government loans to fund their business plans and initiatives. Financing schemes provided by the Government are typically more affordable with lower rates.

The government runs various schemes to help certain groups at difficult stages in their lives. These include for example women and so on, who face unique issues which could result in a lack of opportunity.

Here are three such government loan programs to consider:

a) Soft Loan Scheme for Small & Medium Enterprises (SLSME) 

The SLSME (under MIDF) is a good option if you’re looking for funding. It offers loans to start-ups and SMEs, which can be used to cover working capital needs, fixed asset purchases and more.

The minimum loan amount is RM50,000 with different caps and rate of financing. However, the profit rate is lower at just 4% a year.

For more information on eligibility and how to apply, visit the MIDF web page or the SLSME web page on MASTIC .

b) Graduate Entrepreneur Development Programme (PPUS)

This scheme offered by TEKUN Nasional, an agency managed by the Ministry of Entrepreneurial and Cooperative Development, provides up to RM50,000 in financing for graduates who are Bumiputera and aged 18-40 years old. It is aimed to help such individuals give back to the society and start their own business.

If your business is a partnership, it’s easier to get up to RM150,000 per person by borrowing from the government. Apply online or fill in an application form and submit to TEKUN Nasional. 

c) Indian Community Entrepreneur Development Scheme (SPUMI) 

We also offer financing for Indian business owners in Malaysia, including start ups and established businesses.

The loan scheme is divided into two categories: 

1. i) The Malaysia Small Loan Scheme, where applicants may borrow from RM10,000 to RM50,000 with a repayment period of up to 5 years
2. ii) The Medium Loan Scheme (MLS) has a loan size of RM50,000 – RM100,000 and is repaid over 10 years. For details on the SPUMI MLS or to apply, visit the Application Guidelines web page.

Other loan schemes under TEKUN Nasional include TemanNita Financing Scheme, TEKUN Niaga Financing Scheme, and Ar-Rahnu TEKUN.

If you need more financial assistance, we recommend looking into this extensive list of supporting programs for entrepreneurs.

3. Government-Sponsored Venture Capital 

Venture capitalists provide funding in the start-ups to help them later on, for increasing their activity. These investors provide funds in exchange for shares in the business, or “carried interests”, which is a percentage of profits. Government-sponsored venture capital initiatives work in much the same way.

The Business Start-up Fund (BSF) is an example of how the government provides start-ups with seed funding to allow them to continue developing their products or services.

For any business looking to get financing for a big project, there are various options available that can be looked into. For example, the Malaysian Technology Development Corporation offers a business start-up fund (BSF) which offers up to RM5 million or 90% of the total cost for your project.

The funding instrument you have chosen is a Convertible Promissory Note and/or Preference Share. This means that when the debt or money is borrowed, it can be converted into equity (ownership) in your company, or preference shares that pay dividends.

Note that there is a RM3,500 processing fee for start-ups applying to this fund.

Visit the BSF webpage for more information.  

4. Government Grants

A financial grant from the Government for businesses is a form of financial assistance that gives organizations the chance to spend the money for a certain goal. Typical uses are research, automation, marketing and more.

Grants can be used for a variety of different things depending on the type. Some grants can be for emergencies, capital, or expansion ideas.

Let’s take a look at two government grant programs for start-ups in Malaysia:

a) CIP IGNITE

This program offers up to RM500,000 in grant money to eligible start-ups in the tech industry. It was created by CIP (Corporate IT) and can be applied for by either just starting out or if you have a spin-off company from universities or research institutes.

Cradle Fund- an institution under the Ministry of Finance- found that Malaysian start-ups have massive potential in growth. To cash in on their ambitions, the IT program was started. The initiative also offers young entrepreneurs help by funding their start-ups, providing them with training and mentoring, and giving them the opportunity to purchase goods at a discount.

For more information on the CIP IGNITE program or to apply online, visit their official webpage.

b) (MDEC) SME Digitalization Grant

Start-ups might be eligible for this grant from the MDEC. The grant may cover most of the up-front costs and expenses you need money to make your business digital.

The grant available from the federal government would match to a maximum of RM5,000 for digital subscription services. These services should include options for digital marketing, website setup and remote work.

To apply, just fill in the SME Digitalization Initiative application form and submit it to your MDEC-endorsed service provider, together with the required supporting documents. Upon approval by the insurer, you’ll be asked to pay the difference between the invoice amount and the subsidy.

Read also: Type of Business Loan in Malaysia

References

Malaysia, S.H.O.P.L.I.N.E. (2021) How to fund your start-up business in Malaysia in 2021, SHOPLINE Malaysia Blog. Retrieved at: https://blog.shopline.my/how-to-fund-startup-business/