If you run a business in Malaysia, you’re probably familiar with the concept of business loans. Such loans are commonly used for two purposes: to expand a business, or to revive one. Regardless of the specific need, a business loan can be a big push in a better direction for any establishment. This is because they prevent owners from having to dip into their personal savings to finance operations.
With so many types of business loans in the market, it’s easy to become confused, especially if you’re a first-time loan applicant. So, here are 6 types of common business loans in Malaysia, explained in plain English. Read on to know the best fit to take your business to the next level!
Types of Business Loans in Malaysia
1. Term Loans
Term loans typically offer larger amounts but have a longer debt period (loan tenure). That means you’ll be paying off the loan for quite some time, so businesses typically use these loans to buy fixed assets (e.g. new shoplots/buildings.) A fully-drawn advance is an example of a term loan.
2. Business Overdraft
Overdrafts are linked to a business’ bank account. Basically, they allow you to withdraw more than what is currently available in that account (up to a set limit.) This can really come in handy when your business needs cash for day-to-day operations like paying utility bills. But while it’s tempting to keep using overdrafts for quick cash injections, this type of loan comes with higher (sometimes daily) interest rates, so it’s best to rely on them minimally.
3. Business Line of Credit
Lines of credit allow businesses to obtain funds in a flexible manner. Because you can withdraw only when you need to, this type of loan is suitable for businesses often face cash flow issues due to their seasonal industries (e.g. retail and tourism.) A business line of credit is also known as revolving credit because the amount borrowed will be available again once it is repaid.
4. Trade Financing
Trade financing allows purchase of goods from suppliers. It’s particularly useful for businesses trading domestically and internationally. Because these are often high-volume, high-value transactions, trade financing can help smoothen the process by relying on the issuing bank’s credit rating. Some common trade financing facilities include Letter of Credit (LOC), Banker’s Acceptance (BA), Banker’s Guarantee (BG), and Shipping Guarantee (SG)
5. Business Hire Purchase
Hire purchasing for businesses enables you to rent or buy commercial and industrial equipment. This includes machinery (e.g. IT/healthcare facilities) and vehicles (e.g. lorries/trucks.) With this type of loan, you won’t be strapped for cash when something breaks down or needs an urgent upgrade.
6. Business Credit Card
A business credit card is similar to one for personal use, in the sense that you’re allowed to borrow funds then repay the amount monthly. The difference lies in the higher credit limit and ability to add multiple cardholders so that your employees can also make use of the card for business expenses. While having a company card makes corporate expense tracking easier, it also comes with high-interest rates if payments aren’t made on time, so be careful.
Business Loans for Every Need
While not all the business loan types listed here are applicable to every company, the majority do cater to a very wide range of businesses in Malaysia. If you find your business in need of a little financial help, these five loans can provide a crutch through rough patches, while keeping your vision alive. Make sure to compare rates for the best commercial deals and look up government-aided financing plans if you’re an SME! Here’s to more savvy business decision-making, from all of us at PolicyStreet.