If you are about to start a new business and looking for different ways to fund it, you must have come across various attractive loan schemes to fund your SME that are offered by various banks in Malaysia. However, you have to narrow down your search as most of these SME loan schemes require collateral.
You really need to go through the options with a fine-tooth comb to find a loan that offers the capital you need without the need for collateral.
What is collateral?
Collateral is an asset or property that a borrower offers to a lender while obtaining a financing facility to secure the loan. In case of loses or failed repayment, a lender can seize the asset that has been presented as a collateral. A collateral can be anything from a house to a car, bonds or even vacant land. Moreover, the value of an asset or property you are using as a collateral should be more than or equivalent to the loan amount you are borrowing.
What if I do not have a collateral?
If you own a business or if you are thinking to start an SME for which you need financing, you will find a number of personal loan or business loan schemes that can offer you funding. Whenever you do not have to provide a collateral, you will have to fulfill a certain set of qualification criteria before getting an approval. Along with the regular identity and residential proof related documents, the basic criteria also include:
- A business registration certificate stating if the business is owned by an individual, a private limited company, or has a joint ownership
- Often a bank provides a no-collateral business loan if you have completed certain period of relationship with it
- Operational business years completed by your business (banks may ask for details of business being operational for a certain period of time)
- Any other criteria imposed
Let’s look at these modes of collateral-free financing:
- Micro Financing Schemes
A micro financing scheme is a business loan provided by various banks and financing institutions and it can vary from RM500 to RM50,000. Even though this type of loan scheme consists of a smaller amount, the interest rates involved are on a higher side compared to other loan plans as it is offered without collateral. However, you can also obtain a micro financing scheme at a lower interest rate based on your source of funding.
Banks that offer micro financing loan schemes in Malaysia include Alliance Bank, Ambank, Bank Rakyat, BSN, CIMB, Bank Muamalat, UOB, Public Bank, Maybank etc.
- Seed Funding
Seed funding aka seed money or seed capital is an arrangement where an investor provides funding to a borrower in return for equity stake in the company. Seed funding is primarily obtained in the initial stages of a business up until the business becomes sustainable or economically viable to return the invested funds. Seed money can be acquired via individual entities like relatives, friends etc., or a borrower can also opt for ways like equity crowdfunding, venture capitalists, accredited investors etc.
- Guarantee Schemes
A guarantee scheme generally does not need a collateral. In Malaysia, banks like AmBank, Maybank, CIMB Bank, etc. offer government or CGC guarantee schemes to various small and medium businesses. The funding from guarantee schemes can be utilised for various purposes including to open a business franchise, to buy goods and materials for your business, or to start a new project under your business. You can get a financing amount as much as RM7.5 million (Maybank Franchise Financing Scheme (FFS)) without presenting collateral against these guarantee schemes.
- Grant Schemes
There are a number of grant schemes that are offered for SMEs by the Malaysian government. If your business is in its initial stages or you are about to kick-start its operations, you can apply for these grants to be on a firm footing, financially. These grants include technology grants such as Technology Acquisition Fund (TAF), Business Growth Fund (BGF), Business Start-up Fund (BSF), and Business Expansion Fund (BEF) etc. Export Assistance grants include Market Development Grant (MDG), Service Export Fund etc. Among other grants are Soft Loan Schemes for SMEs along with SME Emergency Fund schemes etc.
While accessing any one of the above mentioned schemes to obtain a no-collateral SME financing, you should also remember that a bank or a financing institution also considers your credit history and repayment capacity before granting you a loan.