Starting and expanding a business in Malaysia can be an exciting venture, but it can be challenging to secure the necessary funding. However, a personal loan for business can help.
In this article, we explore the advantages and disadvantages of applying for a personal loan for business in Malaysia and how business owners can utilise it to finance business expenses.
Why Business Owners Should Apply for a Personal Loan for Their Business
Before we dive into the pros and cons of personal loans for business, let’s find out several common motivations behind getting a personal loan.
1. Kickstarting a Business Venture
Funding a business venture takes considerable time and effort. However, aspiring entrepreneurs can effectively bridge the funding gap with a solid business plan and a personal loan.
This is especially beneficial for those lacking a strong credit history or a robust business track record, which makes it challenging to secure traditional business loans when starting out.
2. Expanding Business Operations
Entrepreneurs often find personal loans for business to be a useful resource when aiming to expand their business operations.
Whether it’s opening a new location, remodelling existing offices, or entering new markets, additional capital is often required.
Additionally, personal loans for businesses prove valuable when entrepreneurs need to acquire more inventory at a larger scale, as buying in bulk often translates into lower costs per unit.
This cost-saving strategy can significantly boost profit margins, making personal loans essential for business expansion.
3. Purchase Equipment or Inventory
Moreover, personal loans for business in Malaysia can also be instrumental in acquiring essential equipment for your team or workspace.
From leasing to purchasing equipment outright, a personal loan for business can provide the necessary funds.
Additionally, entrepreneurs can use personal loans to procure product stock due to its fast approval and disbursement process, thus ensuring business continuity and customer satisfaction.
4. Cover Unexpected Expenditure
Unforeseen circumstances can lead to unexpected expenditures in a business. Equipment breakdowns, fires, increased rent, or payment delays are just a few examples.
In such situations, a personal loan for a business can serve as an emergency fund, helping with cash flow issues and keeping the company afloat during challenging times.
5. Lack of Assets
Lastly, unlike traditional business loans, personal loans are typically unsecured. This reduces the risk of business owners losing valuable assets like property and cars, providing them with peace of mind.
What are the Advantages of a Personal Loan for Business?
Here are some potential benefits of opting for a personal loan for your business needs.
1. Quick Approval and Disbursement
Generally, banks in Malaysia take at least 24 hours to process a loan application and an additional day to disburse the funds.
This turnaround time is reasonable and reflects the due diligence necessary for responsible lending.
However, it’s crucial to exercise caution when encountering lenders promising loan approval and disbursement within just one hour.
Such claims often turn out to be associated with scams and loan sharks.
2. Flexible Use of Funds
Personal loans for businesses offer flexibility in the use of funds, making them suitable for various business needs.
This would include funds to cover operating expenses or any shortfall in cash flow, purchase of equipment, and other business requirements.
However, it’s essential to review the lender’s terms and conditions for any usage restrictions that may apply.
3. No Collateral Required
Personal loans for businesses are an avenue to gain access to fast funding without collateral.
This lowers the risk of losing valuable assets like a car or house, but a penalty fee for late repayment would be charged.
As a result, entrepreneurs should repay their loans on time to avoid incurring more fees.
What are the Drawbacks of a Personal Loan for Business in Malaysia?
While personal loans offer numerous advantages, they also come with some drawbacks.
1. High Interest Rates
One notable disadvantage is the potential for high interest rates, which can be higher than those of conventional business loans.
Borrowers may face interest rates of up to 24% per annum, increasing the total cost of borrowing.
2. Personal Risk
Additionally, personal loans carry a personal risk whereby failure to repay the loan on time or defaulting on it can impact the business owner’s credit record.
Such a misstep can result in a significant drop in their credit score, making it challenging to access various financial products in the future.
This includes personal loans, credit cards, house loans, car loans, and even business loans.
Furthermore, lenders often evaluate an individual’s Debt Service Ratio (DSR), and if it exceeds a certain threshold due to outstanding loans, securing additional financing can become exceedingly difficult.
3. Limited Financing Amount
Furthermore, personal loans have limitations on the financing amount, which is highly dependent on the borrower’s credit score, income level and DSR amount.
In general, personal loans in Malaysia have a maximum amount of up to RM250,000, which may prove insufficient for entrepreneurs seeking larger funding for their business endeavours.Top of Form
Why Do Businesses Prefer Applying for Personal Loans Over SME Loans?
In Malaysia, entrepreneurs often find themselves at a crossroads when securing capital for their ventures.
One critical decision they must make is whether to apply for a personal loan or seek out a Small and Medium Enterprise (SME) loan.
While both options have their merits, there are distinct reasons why many businesses opt for personal loans instead of SME loans.
One of the primary factors influencing this choice is the stringent criteria associated with SME loans.
To comprehend why businesses may favour personal loans, let’s delve deeper into the specific challenges posed by SME loan applications:
- Length of Business Operation
Most banks and financial institutions require SME loan applicants to have been in business for at least two years.
This prerequisite can pose a significant hurdle for startups or businesses in their early stages of operation.
- Financial Scrutiny
Banks meticulously review a company’s bank statements, assessing both incoming and outgoing cash flows.
This meticulous examination can be nerve-wracking, especially for businesses with irregular or unpredictable cash flows.
- Total Sales
Another challenge in securing an SME loan is providing comprehensive records of a company’s tax payments and total sales figures.
Banks use these metrics to gauge the business’s ability to meet repayment obligations.
For businesses with lower turnovers, typically less than RM500,000, obtaining an SME loan can be exceptionally challenging due to perceived higher risks.
How Bluebricks Can Help with Personal Loans for Business
To sum up, a personal loan can be a smart resource for entrepreneurs seeking to fund their business ventures or reach specific business goals.
When considering a personal loan for business, we also help boost the chances of approval for your application.
As a leading bank loan and debt consolidation agency, our consultants can help you explore other funding solutions as well. Bluebricks also offers a range of solutions, including:
- Personal loan rejected services
- SME loan rejected services
- Mortgage loan rejected services (for buying a new home, refinancing and cashback purposes)
- Collateral loan services
Trusted Personal Loan Consultancy Services
By leveraging our expert loan consultancy services, we help SMEs and businesses finance their business needs, compare competitive personal loan rates, and clearly understand the loan’s terms and restrictions.
Bluebricks provides a customised approach to every client based on their financial situation and business goals before recommending any financial products. For instance, some of the crucial factors to consider include:
- The specific loan amount you require.
- The urgency with which the loan amount is needed.
- Whether you or your parents own a property that has been held for over ten years.
- Your income level.
- Your CTOS score (such as your credit score and credit history).
Personal Loan for Business – FAQs
There are an array of options when it comes to personal loans for business in Malaysia. Hence, it is necessary to research and compare between lenders and various funding solutions.
With this intention in mind, we have prepared some frequently asked questions that may arise to help you make informed decisions.
Typically, banks and lenders tend to decline applications from individuals with low credit scores, making it difficult to obtain a bank loan. Therefore, individuals with poor credit may need to seek out alternative loan agencies.
Banks and lenders will assess your creditworthiness by checking your credit score and report. You also need to present proof of income to provide reassurance that you can afford the monthly repayments, and have a low DSR.
The necessary paperwork for the loan application would be a copy of identification documents, bank statements, the latest payslips, business registration documents and other supporting documents required by the lender.
Loan amounts depend on your creditworthiness and the lender’s policies. Personal loans typically range from RM2,000 to RM250,000, allowing you to choose an amount that suits your business needs.