Starting a business can cost anywhere from hundreds to millions of ringgit. What if you need capital to fund larger business projects, or to tide over rough patches during day-to-day operations? You may need to think about equipment costs, marketing, employee expenses or the cost of registering your business.
On the upside, there are several ways to raise money for your entrepreneurial aspirations. Here are six options in Malaysia.
1. Personal loan
A personal loan may not be the first thing that comes to mind when you think of “business funding”, but it can be a good way to drum up smaller amounts of funding quickly. This makes it suitable for microenterprises that don’t need a lot of capital, such as a home-based bakery or a food truck business.
To qualify for a personal loan, you’ll need a decent credit score and a history of stable income. These loans are generally easier to get than a business loan, which may require your business to have been in operation for a few years. Some loans also disburse funds within one working day, which is useful for covering emergencies.
On the downside, personal loans have a lower financing limit of between RM50,000 to RM200,000, although your limit may depend on your income. They also generally have higher interest rates than business loans. Plus, if you run a business or if you’re self employed, it may be harder to qualify for a personal loan.
Interest rates as low as 4.99% p.a.
Alliance Bank CashFirst Personal Loan
2. Business loan
Business loans are harder to qualify for than personal loans. You may need a minimum number of years of operation. You may also need to put up collateral to be eligible for higher amounts of funding. Additionally, the funds you receive come with restrictions – for example, you may not be able to use them to purchase shares or real estate investments.
On the upside, business loans can help you get high amounts of funding – between RM10,000 and millions of ringgit, though it depends on your business operations and if you have any collateral to pledge. They also charge interest rates of around 5% to 7% p.a., which is typically lower than those of personal loans, which can be as high as 18% p.a.
3. Grants and schemes
Government or corporate schemes can offer generous low-interest (or interest-free) financing, grants or mentorship and networking opportunities.
However, each financing scheme has a set of eligibility requirements. Some schemes are only available for specific businesses (e.g. those looking to increase their digital capabilities) or demographics (e.g. if you are a female entrepreneur or a Bumiputera applicant). In addition, some grants can be competitive, requiring several rounds of evaluations before your application is accepted.
For a list of government and corporate grants and schemes, you can visit SME Corp. Malaysia, MaGIC, and MDEC.
4. Crowdfunding
Crowdfunding refers to raising money through a large pool of individual investors. There are a few types of crowdfunding, including:
- Rewards-based crowdfunding. You’ll see this model in international sites like Kickstarter and Indiegogo. Users pledge money to other individuals or businesses in exchange for tiers of non-monetary rewards.
- Donation-based crowdfunding. Sites like GoFundMe allow users to support charitable causes or local entrepreneurs without expecting anything in return.
- Equity crowdfunding. Individuals invest in companies in exchange for a share of ownership or profit. Equity crowdfunding sites in Malaysia include Crowdo, pitchIN and Leet Capital.
Raising funds through crowdfunding can potentially be easier than through bank loans and grants, as eligibility requirements may not be as stringent. Rewards- or donations-based platforms may not even require any business operational history.
But it may also have little pay-off – some platforms won’t disburse any funds if you don’t reach the target funding, even if you have spent time, money and effort into building your campaign.
5. P2P lending
Debt-based crowdfunding, better known as peer-to-peer (P2P) lending, is when investors pool money to lend to businesses.
P2P loans can be an alternate financing option if you don’t qualify for a bank loan, as they have lower financial and operational eligibility requirements. They can also offer quick financing – if you’re borrowing smaller amounts (e.g. below RM100,000), your application may be processed within days.
But be prepared for higher interest rates. P2P platforms tend to charge higher interest rates (up to around 18% p.a.) than banks (around 5% to 7% p.a.), as investors expect higher returns in exchange for taking on more risk. This is on top of the fees charged by the P2P platforms themselves, which may be a percentage cut of your loan.
6. Venture capital and angel investors
Venture capitalists are firms or individuals who fund businesses that show high growth potential. Their capital is pooled from other individuals or corporations. On the other hand, an angel investor is a high net worth individual who invests their own money into early-stage companies.
Venture capital and angel investors can be hugely beneficial to fledgling companies. They can provide large sums of funding and mentorship or networking opportunities. They may also not require any repayment if your business fails.
However, these opportunities tend to be competitive. You’ll need to prove that your business or business idea has good long-term growth potential. If you do succeed in getting funding, venture capitalists or angel investors will ask for equity or convertible debt (debt that is converted into equity at a later date) in exchange. They may also want to be involved with how you run your business, so you may relinquish some control over your company.
The MaGIC platform has a list of venture capital funds and angel investor platforms in Malaysia.
Consider your financing needs
Your choice of funding may come down to your financing needs, what you are eligible for, and the potential downsides you’re willing to take in exchange for funding. But with so many funding options, it’s never been easier for aspiring entrepreneurs to get their business idea off the ground.
