Loan to Start a Small Business

Beginning a small business can be a challenge and the reward in waiting. Many people work hard to accumulate enough capital to keep their business running well. One of the main avenues that can be used is a loan to start a small business. Here are a few of the things that we can discuss concerning this type of loan. Requirements, types of loan, and risk that you need to know.

General Requirements to Apply for a Loan

Before starting the application for a loan to start a small business, you need to meet some basic requirements. Most of the time the applicant must demonstrate that they have the ideal foundation to start the business.

Business registration The first step that cannot be forgotten. It becomes important for you to have a business that is registered with the Companies Commission of Malaysia (SSM) or the respective body of your country to give credibility to your business.

Another item you’ll need if your business serves the public is a valid business license. For all applicants looking to take out a small business loan and get financing for their small business, preparing financial statements that are transparent and clear is a must. If you’re starting a new business, have a realistic financial projection for how much money you need to get the business started.

Types of Loans to Start a Small Business

Select the type of loan you want to start a small business. Each type of loan has its strengths and weaknesses, so it’s smart to know your options ahead of time.

• Bank loan: This is a formal loan (requiring collateral). The rate of interest may be higher, but the amount available is larger, and is designed for those planning a large-scale business.
• Government Agency Loan: For newbies, loans from government agencies like TEKUN Nasional and MARA will suit you best. The interest rate is lower, not collateralised. There’s opportunity for small entrepreneurs that aren’t able to acquire assets that can be put up as collateral.
• Micro Loan: Micro loans are best for someone who requires a loan on small intervals to start out. This is usually meant for micro entrepreneurs who run stuff like grocery stores or services. The repayment date offered is low, like between 6 months and 3 years.

Bank Loan vs Government Agency Loan

The principal difference between a bank loan and a loan obtained through a government agency is that you will not need to provide security or collateral for the latter. Bank loans are also harder to obtain and interest rates are higher. The loan obtained through an agency of the government bears a lower rate of interest and is easier to secure. You probably will not even have to provide collateral. This feature will open for you the prospects of business for which an investment is possible without danger of the loss of your possessions.

Type of Loan	Interest Rate	Repayment Period	Collateral
Bank Loan	7% - 10%	5 - 10 years	Yes
Government Agency Loan	4% - 6%	1 - 10 years	Not required

Loan Programs Available in Malaysia

As in Malaysia, there are various programmes of loans granted in small amounts, intended to facilitate the small entrepreneur beginning business. These are granted by financial institutions and government agencies alike, which desire to give assistance to small businesses in the country.

TEKUN Niaga Financing Scheme and Bank Islam

• TEKUN Niaga Financing Scheme: Very popular among small entrepreneurs seeking business start-up loans. Loans of up to RM100,000 at an interest rate as low as 4% per year are available. This scheme is specially designed to assist mid and small entrepreneurs who wish to establish or expand their business.
• BangKIT Micro Financing by Bank Islam: If you are fresh towards a small business, loans between RM500 and RM20,000 should suit your needs. The repayment period from 6 months to 3 years will help you in business financial planning.

Advantages of Loans for Small Businesses

When you are starting a small business, applying for a loan can have big benefits: Don’t try to start your business without enough capital—you’ll just fail. Loans to start a small business put the money in your hands to buy equipment, pay rent for premises and other operating costs.

• Sufficient Capital: Loans to start a small business will provide you with the necessary funds to purchase equipment, pay rent, and cover other operational costs.
• Support and Training: Apart from cash in hand, some loan programs, such as BangKIT Micro Financing by Bank Islam, can offer that extra boost with invaluable business training and financial advice.
• Flexible Repayment: These loans being offered by government agencies means they can be more flexible would-be entrepreneurs get to pay the loan longer than usual.

Interest Rates and Costs of Loans for Small Businesses

Having an understanding of interest rates is crucial before applying for any loans. Loans from the bank normally carry a higher interest rate range of 7% - 10% per annum, while loans from government agencies such as TEKUN Nasional have lower interest rates of around 4% - 6%.

Before applying for a loan, ensure that you prepare a realistic financial projection so that you know how much you will need and if you will be able to pay the money back. Never be caught with a loan your business doesn’t need as it is likely to place unnecessary stress on your finances.

Loan Risks

While loans contain numerous advantages, there are also risks that must be considered. If the business does not run according to plan, it could impact your ability to repay the loan.

• Penalties & Legal Action: Hardship in repaying loan on time can incur heavy penalties or raise the specter of legal action by the lender.
• Effects on Credit: Failure to repay loan can severely affect your credit record.

Immediate Loan for Small Businesses at Amanahkredit

For business owners who need an instant money loan, Amanahkredit is a great choice. With a simple application, Amanahkredit can provide you with loans that will help you start a small business without the headaches of waiting. The loans can be customized for your specific needs e.g. to buy stock, rental, or wages.

Practical Advice: Having a good business plan in place ensures that you only seek a business start-up loan when and if you are ready to. Do double-check all the terms and conditions carefully, before making an application.

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