SME Financing: How To Recognize When Your Business Needs It

Small and medium-sized enterprises (SMEs) form the cornerstone of Malaysia’s economy, making up approximately 97% of all businesses. Their pivotal role in driving growth cannot be overstated. Yet, many entrepreneurs face significant challenges that hinder their ability to scale and contribute effectively to the nation’s economic progress.

From high operational costs and delayed client payments to navigating complex financing systems, these obstacles create a tough environment for SMEs. Traditional financial institutions often compound the issue with lengthy application processes, slow approvals, and strict qualification criteria. Unsurprisingly, 50% of businesses fail within their first five years due to financial constraints.

But challenges also present opportunities. With the right financing solutions, SMEs can overcome these barriers, seize growth opportunities, and achieve long-term success.

When should SMEs seek financing?

Knowing when to secure financing is as crucial as choosing the right financing option. Here are key indicators that suggest it’s time to explore funding:

1. Cash flow challenges

For SMEs to sustain day-to-day operations or capitalise on new opportunities, they need to have constant working capital. With nearly a third of local SMEs reported to have less than two months of cash reserves in 2023, it can be difficult for businesses to invest in growth with limited access to funds due to delayed payments from clients or seasonal revenue fluctuations.

2. Business expansion

When SMEs reach a point where they’re ready to grow beyond their current scope, financing becomes key to supporting their expansion plans. This might include launching new products or services, entering untapped markets, or opening additional locations to increase reach.

These strategic moves often require significant investment, but with limited collateral or a shorter credit history, SMEs may struggle to secure traditional financing. With the right funding options, businesses can capitalise on these expansion opportunities, building a larger customer base and increasing revenue potential.

3. Asset acquisition

As SMEs grow, they often need to acquire new assets—such as machinery, vehicles, or specialised tools—to sustain operations and meet the demands of expanding contracts. This is particularly critical when working with government agencies or larger clients that require timely delivery and high production capacity.

Securing financing for asset acquisition ensures businesses can scale operations without depleting their cash reserves. For instance, purchasing modern equipment can improve efficiency, increase output, and enable a business to meet higher order volumes, ultimately positioning the business for growth and long-term success.

4. Regulatory compliance

In regulated industries, meeting compliance standards or obtaining necessary certifications can be costly. For example, in the F&B industry, the cost for applying a Halal certification can range between RM100 to RM700, depending on the size of the business.

The certification part contains a multi-step process from application through an audit, inspection, testing and approval that can go up to RM10,000 depending on the business type. This does not include the actual premise and equipment upgrades and any other compliance-related material handling and delivery management costs to comply with the certification requirements.

Through financing, businesses can leverage their industry certification to expand their market reach, capture a wider customer base, and achieve growth.

Establishing the different situations in which financing is required is just the first step in a business’s growth strategy. The next step is to identify and understand the financing options available for SMEs.

Exploring financing options for SMEs

Depending on your business’s needs, creditworthiness, and financial goals, there are various financing options available:

Traditional financing

• Term Loans & Working Capital Loans: Banks provide loans for operations, equipment upgrades, and marketing. While these loans often feature attractive interest rates, the approval process can be lengthy and requires substantial documentation. In addition, term loans are more favourable than personal credit cards (15%-18% p.a.) as they offer fixed rates, with business loans potentially as low as the Base Lending Rate minus 2%.
• Business Lines of Credit: A business line of credit is a flexible option linked to your business banking account, enabling you to borrow funds as needed and repay them over time. This is particularly useful for managing short-term cash flow gaps. In 2024, average rates for new business lines of credit range from 7.65% to 9.15%, depending on factors such as the lender, your credit history, and the financial standing of your business.

Alternative financing

• Venture Capitalists & Angel Investors: These investors offer substantial funding in exchange for equity and partial control of your business. In Malaysia, the venture capital market is expected to reach US43.20 million by 2025, with early-stage investments dominating the market at an estimated US223 million.
• Equity Crowdfunding: Equity crowdfunding (ECF) is a new way for small businesses to raise money by getting funds from the public through online platforms approved by the SC. By December 2023, the ECF industry had successfully raised RM686.89 million through 381 different campaigns.
• Digital Securities Offering: Digital Securities Offering (DSOs), or security token offerings (STOs), are offerings and sales of securities that exist and are issued within the blockchain. It works similarly to other securities offering such as stock or notes, except it is a digital representation of the securities which can be exchanged on approved digital security exchanges.
• Peer-to-Peer (P2P) Financing: P2P financing platforms connect businesses with individual investors online, allowing small and medium-sized enterprises (SMEs) to get funding without going through traditional intermediaries like banks. Currently, there are only 13 licensed P2P operators that are registered and approved by the Securities Commission Malaysia. And platforms like CapBay provide industry-specific solutions, such as supply chain financing, to support micro, small, and medium businesses.

For SMEs, finding the right financing solution can be overwhelming, especially if they operate in industries that are often overlooked by traditional financial institutions such as banks. That’s where platforms like CapBay come in and provide tailored solutions that not only help to solve a business’s funding problems but also empower them.

How CapBay empowers SMEs

CapBay has established itself as a trusted leader in supply chain financing, offering tailored solutions that address the unique challenges faced by SMEs. Here are the key products designed to help businesses grow:

1. Working Capital Financing

Access up to RM150,000 without collateral to smoothen operations and bridge cash flow gaps. With flexible repayment terms of up to 24 months, this solution is ideal for businesses needing quick, hassle-free funding.

• Key Details:
  • Amount: Up to RM150,000
  • Financing Margin: 100%
  • Term: 1–24 months

2. Secured Financing

Leverage your assets as collateral to unlock larger financing amounts for growth initiatives. This option offers competitive terms for businesses looking to scale operations.

• Key Details:
  • Amount: Up to 70% of property value or 50% of land value
  • Term: Up to 36 months

3. Invoice Factoring

Turn unpaid invoices into immediate cash flow. Particularly useful for businesses in specialised sectors, such as government projects, this solution ensures liquidity without adding debt.

• Key Details:
  • Amount: Up to RM3,000,000
  • Financing Margin: Up to 80%
  • Term: Up to 120 days

CapBay’s range of financing solutions is designed to answer the needs of SMEs in need of funding, especially in areas where customised solutions are needed. But beyond the products offered, CapBay is a platform that can provide benefits that traditional financial institutions might not offer.

Why choose CapBay?

CapBay’s innovative approach to financing offers a competitive edge over traditional financial institutions:

Feature	CapBay	Traditional FIs
Approval Time	Within 48 hours	Weeks or months
Customised Solutions	Tailored to business needs	Standardised options
Documentation Process	Flexible and streamlined	Rigid and extensive

Since its inception, CapBay has financed over 2,000 underserved SMEs across 20 industries, disbursing more than RM3.7 billion. With Shariah-compliant options and licensing from the Securities Commission Malaysia, CapBay ensures ethical, regulated, and accessible financing for businesses.

The role of SME financing in growth

Financing isn’t just about solving immediate cash flow issues; it’s a strategic tool for growth. By leveraging the right financial solutions, SMEs can invest in innovation, enhance their competitive edge, and secure long-term sustainability.

Platforms like CapBay make this journey easier, empowering businesses with quick, tailored solutions that address their unique needs.