Digital financing platforms are changing views on financing, both personal and business financing. These days, bank financing is no longer the only available choice for raising capital, especially for small and medium-sized enterprises (SMEs). Malaysia, in particular, has regulated digital financing – the first ASEAN country to do so, although Malaysian digital financing platforms can only provide business financing instead of personal financing.
But if you are a small business owner, the choice may confuse you. Which institution provides the best financing for your business? The answer depends on your own business. So let’s take a look at the product structure of both institutions and see which one fits you best.
Traditional financial institutions
When we talk about traditional financing, we usually are referring to bank financing. Banks provide financing products to companies, and their product structures are often (but not always) long-term and require you to take out a high amount. The amount value of traditional financing products is generally higher than what digital financing platforms can offer. This is an advantage for bigger, more settled businesses.
There are two types of financing products from traditional institutions: secured and unsecured financing. The only thing that differentiates these two options is collateral. Collateral is an asset that can be seized if you can’t repay your financing. It should be a valuable asset, such as property or land. In unsecured financing, you don’t need any collateral to be approved. However, the assessment of your business can be extremely strict.
A drawback of bank financing is that application processing can take some time. Processing a bank financing application can take more than a few weeks, maybe even months.
Digital financing platforms
In digital financing platforms, most financing products require minimum or no collateral. Investors will collectively fund your financing needs within several days if your business is approved for digital financing. This is why digital financing raises financing fast.
Another advantage of a digital financing platform is the ease of its process. Commonly, digital financing companies are online-based. You can apply for business financing in a matter of minutes, while most digital financing platforms also offer quicker approval notifications for your financing application.
However, digital financing platforms tend to offer shorter-term products, with smaller fund sizes, such as working capital financing or invoice financing. It is most suitable for small to medium-sized businesses who need financing to manage working capital or ease cash flow.
So, which of the two institutions above will help your business more? Take a closer look at your company before you apply. Good luck!