55% of Malaysian SMEs require more funds to operate their businesses. While bank financing can be a good option for SMEs to gain more working capital, there are now alternative funding options. Such alternatives are helpful for small businesses; if they are rejected by one investor, they can try another route. Here are the 5 funding options useful for SMEs.
1. Credit card
SME owners often use credit cards for financing, since this is a fast and easy method to fund business operations. Despite its ease of use, using your credit card as a source of funds can be costly – particularly if your credit history isn’t very good. Remember that a card issuer will determine annual percentage rates based on your personal credit scores. Also, funding via credit cards is restricted by withdrawal limit.
2. Funding from family and friends
A very traditional financing option, turning your family and friends into your investors has its advantages. It’s easy and flexible; you can negotiate the terms. Getting financing from those close to you is also great if your business is young and without sufficient history; traditional institutions tend to favor more established businesses. But stay professional and repay your investors on time. Don’t put your personal relationships at risk; combat misunderstandings by having written agreements in place. Document all terms and conditions so everything will be clear.
3. Equipment leasing
Many people don’t know that they can make money by leasing their equipment. For example, if you run a freight-forwarding company, you can lease your truck; or if you have an expensive production machine, you can lease it.
4. Invoice financing
Invoice financing is a way for businesses to get funds based on their amounts due from customers, essentially trading invoices for quick financing. Once the client has resolved his invoice, the issuer of invoice finance can repay the funds. This method improves cash flow and allows small businesses to quickly finance their next project without having to wait for their customers to resolve their invoices.
5. P2P Financing
SMEs put emphasis on fast financing. P2P financing, which allows individual investors to loan funds to P2P issuers via an online platform, can be the best solution for the lack of SME financing. P2P financing offers several advantages, including speedy online application, faster processing and disbursement, and no collateral requirements.