For enterprise below 3 years! Why not source your financial solution with BNM-approved institution?

Young companies (especially those less than three years old) face extraordinary challenges and risks. Since the product or service has not yet been recognized by the society, it is often due to the situation of spending more than income. In addition to expenses in order to establish the company branding in the market, you also have to prepare money to buy goods and spend for daily expenses such as rent, wages, and so on. These are all huge expenses. Unless you have a very strong source of funds to back it up, otherwise you have to use your own savings to start a business. Are you sure whether your own savings are enough to keep you on track in the company and continue to support your company? In many cases, the most common reason that causes a company to close down is due to improper management and the lack of cash flow. Money is like the blood of an enterprise, so additional financial support/financing is very important.There are generally several financing channels, among which the more common ones are finding someone to invest or borrowing a loan.

I believe that many companies' first choice of funding will think of looking for someone to invest. The reason for it is if the company goes bankrupt, it does not need to bear the risk of bankruptcy due to unable to do loan repayment. Is the fact that simple? Although you don't have to pay back if you find someone to invest, investors will ask for your company's shares in return. The main reason investors invest in the business is to get high returns, so the controlling power is often in the investors rather than the entrepreneurs. In many cases, investors will favor him rather than you in terms of equity distributions. Unless you are a very experienced entrepreneur in equity distributions, otherwise, for a newer entrepreneur, you will often overlook a lot of financing details. As a result, when the company develops to a certain level, many disputes and troubles are caused when investors want to claim their own interests.

Moreover, entrepreneurship is not as rare as it used to be. Many young people nowadays will try to start a business. Therefore, there will be a phenomenon that there are far more entrepreneurs than investors. Unless the product or service provided by your company is very innovative and unique, otherwise investors will not rush to invest in your company. If you are really able to find angel investors who are willing to invest in your company, but still your company is very young, investors do not dare to invest too much money in the company. If the funds are still insufficient, then loans are actually another important channel of financing. As early as 20 years ago, Robert T. Kiyosaki, the author of the famous "Rich Dad, Poor Dad", mentioned the importance of loans. Many entrepreneurs are afraid of borrowing money. If the company fails to continue and close down, then they will face the risk of bankruptcy. This depends on the confidence level in your own business. If you have confidence in the company and believe that the value of the company will grow, then loans are not a problem. Of course, the premise is that you must seek legal financing channels. At present, according to the regulations of the Ministry of Finance and Bank Negara, the loan interest must not exceed 1.5% a month or 18% a year. All legal loan channels (such as banks) must comply with this rule. Therefore, as long as your business returns exceed 18% a year, then loans are considered a very cost-effective financing option. I believe that most entrepreneurs will think of banks when it comes to loans, because this is the most common and legal loan channel for the public. Even so, if you are a young company which is established less than three year, then I don't encourage these young companies to go directly to the bank for loans. Most of the banks will think that enterprises established less than three year cannot withstand the impact, and have a very high risk of facing bankruptcy and will not accept loan applications.This is very reasonable, because banks use the public’s savings to lend to enterprises, so banks are fully responsible for the risk of the loans. Therefore, the risks that can be taken are also very limited, banks will only give loans to very established and stable companies, and not for high risk young businesses. Due to this particular reason, I do not recommend young companies to apply for bank loans directly, so that you won't waste your precious time and energy waiting for the bank to approve the loan in vain. After all, banks do business not charities.

So, for business less than three year, are there other safer and legal loan channels? YES. In fact, some government departments, such as Bank Negara Malaysia and the Ministry of Finance, provide a number of loan programs to young enterprises in order to support the growth of these enterprises. The government understands that these young companies are in great need of financial support. Here are some examples

• CREDIT GUARANTEE CORPORATION (C.G.C)

• SYARIKAT JAMINAN PEMBIAYAAN PERNIAGAAN (SJPP)

• PEER TO PEER LENDING (P2P)

These institutions are all approved by Bank Negara and the Ministry of Finance to assist the development of young enterprises and there are very good loan platforms on the commercial stage. At the same time, these platforms can also become a bridge so that these young companies can more easily obtain bank support in the future.

HOWEVER

It does not mean that your company is a young company, so you will definitely be able to get support from these platforms. Thinking from the standpoint of the government, the government also hopes to help potential companies only, not all companies can get support equally. In order to get support from these platforms, certain loan requirements must be met. Businesses less than three years often make some business mistakes due to lack of business experience. As a result, it does not meet the financing requirements and cannot obtain a loan. Next, I will list the three most common mistakes that young companies make, and how to avoid them so as to increase the chances of obtaining financing approval.

• Using personal savings account to run a business

For convenience, many companies that have just started their businesses just use their own savings accounts to make transactions with customers. Actually this is a big mistake in business. The real function of a savings account is for personal use, not for business purposes. Plus the name of the savings account is the name of the entrepreneur himself, not the name of the company. So assuming that all your transactions today are placed in your personal savings account, when you want to apply for a loan, no matter how good your business volume is, neither government platforms nor banks will recognize all transactions in the savings account.

So, in order to avoid this mistake, from the moment the company was first established, you have to open a company’s current account immediately and place all transactions in the company’s current account

• The transaction is not recorded in the company's current account

This mistake generally occurs in the cash term businesses. In cash term business, customers generally give cash after completing a transaction, however, the entrepreneur did not put the cash into the current account, but used it for other purposes, or put the money directly into the personal savings account. Currently, financial institutions or government agencies pay much attention to the company’s current account. When these institutions want to know the transaction volume of a company, the first thing they will look at is the company's current account. Assuming that all transactions today are not recorded in the current account, then these institutions will assume the business is not performing , so there is no confidence to finance the enterprises. There are also some non-cash transaction companies, in order to avoid tax and deliberately not put the business transaction into the current account.

So, in order to avoid this mistake, you have to bank all the business transactions into the current account for recording purposes. In fact, there are many convenient non-cash transaction methods nowadays such as online banking , ewallet and so on. These facilities can easily make your business model cashless. If you cannot change your business model and must trade in cash (like hawker business), then please deposit your collected cash in the company’s current account for a fixed period of time (example, once every three days, once a week).

• No balance in current account

Many entrepreneurs think that the current account is just used for recording purposes, herefore, every time it comes to the end of the month, the balance of the company’s current account is always insufficient. Entrepreneurs will move the money to the savings account, fixed deposits, or other investment platforms. If you want to apply for a financing loan from a financial institution or government agency, then this will become a shortage. The reason is that financial institutions, such as banks discover the current account balance is insufficient, then it will be considered that the company does not have enough cash flow to respond to emergencies. After all, in terms of law, a company and its founder are separate entities. The founder of the company cannot take the company's money casually, at the same time, when the company needs funds, the company cannot take the founder's money as an emergency. If financial institutions and governments want to give loans to a company, they must also ensure that the company's cash flow is healthy. So the balance amount of the current account is very important.

I strongly recommend that the company's current account must have a balance of at least RM10,000 and above.

Of course, the above are the most common business mistakes made by young companies, and there are other mistakes that can cause young companies to fail to get loans. To help these young companies, Maxes Biz Solutions will provide professional consulting according to your company's current business model and situation, reveal the most common mistakes made by other young companies and how to correct these mistakes, In order to allow you obtain loan support more effectively from the financing platform approved by the government.