Is a business loan essential for every entrepreneur? How do you go about applying for such a loan?
A business loan is a specialized financial product for business owners. The amount you can borrow depends on the size of your company, annual turnover, business classification, and the bank's assessment criteria.
In this article, we will share information about several ways to apply for business loans in Malaysia.
Is taking on debt for your business good or bad for your future? Many entrepreneurs may still be wondering or in a dilemma about choosing between borrowing money or continuing their business with their own capital or a small business fund.
The best reason to apply for a business loan is when the business is ready to expand, and you believe that with the help of this loan, the business will achieve more profits than before.
For example, you want to open a new branch from a single restaurant to multiple branches in different locations. You can already estimate how much sales you will make per day at the store, monthly costs, and how much profit you will gain.
With increasing demand from existing customers and a well-known brand, there is no issue if you decide to apply for a loan from the bank.
Additionally, you should apply for this loan to improve equipment and hire more employees.
Personal loans are given to individuals and can basically be used for any purpose. They are normally unsecured loan (called ‘clean loan’), meaning that the lender does not require any form of security (collateral) for the loan. Instead, a personal loan is given based on the borrower’s creditworthiness. Usually loan providers would look at the borrower’s credit history through their CCRIS/ CTOS credit record, earning potential and repayment ability.
On the other hand, a business loan is designed for business use, and is given to companies or business entities, not individuals. A business loan can be used to buy business premises, equipment or help with funding working capital.
For your information, applying for a business loan is slightly different from applying for personal loans, car loans, and the like. Generally, applications for business loans take several days before they are approved.
Therefore, taking early steps is better for your preparation. Here are some easy steps to follow when applying for a loan:
The first thing you need to do before applying for a loan is to identify the purpose of your loan application. Every business surely has specific reasons why it needs the assistance of a loan.
For example, it could be for renovations, expanding job opportunities, increasing production of goods, and so on. What's certain is that entrepreneurs seek loans to streamline their business operations and processes.
This indirectly saves time and energy for small business owners who work tirelessly to ensure that their business runs smoothly as planned.
Once your business has clear and realistic goals, it can significantly help you determine what you truly want to achieve. Your focus on the business won't easily waver. If you succeed in the loan application, you'll know how to manage the funds wisely.
Even though the amount of money you can borrow depends on the agency or institution involved, it's still crucial for you to make your own estimate of the required loan amount.
Applying for the right amount can increase your chances of approval. You can use a loan calculator to get an estimate.
If possible, include a detailed business plan in your loan application to improve your chances of approval. This is because the bank can make a better assessment.
Imagine an applicant with concrete evidence in a written plan; they are more credible and believable compared to those who only talk and dream in their heads.
Moreover, if you have no record of running a business, obtaining a business loan can be quite challenging, whether it's for an online business or otherwise.
As a result, entrepreneurs might resort to personal loans, which often come with higher interest rates.
Some key things to do before preparing a business plan include:
Once you've identified all these elements, it becomes easier to create an effective business plan.
Additionally, essential information that should be included in this plan consists of business information, market analysis, your business competitors, operational strategies, and financial plans involving cash flow statements, profit and loss statements, and key calculations.