Entrepreneurs in Malaysia who want to start their first business will be glad to learn that there are a variety of financing options available. Starting a new business is not without its difficulties. It takes a lot of effort to make it work, no matter what the obstacles are, from registering your business to acquiring money to kick-start your operation.

Slowly but surely, the startup trend has built traction in mainstream culture as one of the most prominent opportunities of this era. We’re long past the golden age of scrappy tech founders rising up to become global figureheads and revolutionary industry leaders, yet startups are still making headlines for innovative solutions introduced to problematic markets – raking in venture capital that often soars into the millions.

The reason is simple; when a startup idea makes it into an untapped space, it makes it big – delivering abundance in value through unique strategies that make the lives of a certain demographic better in some shape or form. This is the reason investors and large institutions take such interest in prospects that portray potential startup glory.

It’s not all rainbows and sunshine though. In a time where buzzwords like entrepreneurship and unicorns are commonplace, it can be easy to forget that building a startup is often extremely challenging, especially if you aren’t utilizing the right financing options.

Finance in Malaysia consists of its own labyrinth of intricate funding alternatives with incubators, venture capitalists and investor interest taking hold within the country’s many prime spots. In fact, entrepreneurs in Malaysia are privy to quite a handful of financing opportunities as opposed to many of the neighbouring nations that lag behind in their startup scene.

Here are a few of the more well-known options to choose from:

#1. Friends and Family

Let’s get this option out of the way before moving on to other complex methods. Many successful startup founders have relied on the trust of good friends and understanding family members for initial rounds of capital. The concept behind this approach is valid, because most other financing options often have a catch. Investors watch your every move, while conventional loans may have heavy conditions that you face later on.

Friends and family members are more lenient in this sense, even if you structure a mutual agreement based on payback or revenue splits. Think about family businesses for example, where an ambitious son is financed by his supportive father. Many big names have started out this way. Of course, it’s a good idea to diversify your financing streams down the line, as this is an initial option for entrepreneurs who have an idea and want to test the waters with the most minimal amount of risk incurred.

Either way, it’s important to remain professional in your approach. Draw up projection plans, be specific with your asking amount and be accountable for every dollar. Plan out an entire strategy based on the capital that you’re targeting. List down costs for advertising and marketing, expenses to be expected and figures needed for production processes. Finally, set out a timeline that elaborates on how you intend to use the money and at what point you expect to be seeing returns or results of some kind.

#2. SME Financing Programmes

Malaysia’s private sector presents a long list of potential financing opportunities in the form of SME programmes from various established institutions, some of which cater to budding startups.

The SME Bank Business Accelerator programme is one of the more prominent choices, initiated by SME Bank and aimed at supporting the growth of startups and SMEs in need of capital. Their offer starts at a minimum of RM50,000 and ends at a maximum of RM1,000,000. It can be used for financing working capital or fixed asset purchases and comes at a maximum borrowing period that ranges between 7 to 10 years depending on your situation.

Another big programme is the BSN Microplus initiated by Bank Simpanan Nasional. As the name suggests, this programme is aimed more at the micro or small business range and is suitable for startups or companies that focus on major sectors like service, retail, wholesale and manufacturing. Microplus grants applicants a cash range between RM50,000 to RM250,000 with a borrowing period ranging between 1 to 7 years.

#3. Government-based Grants

Before we touch on the conventional loan options, it’s a good idea to try your luck with the government-based grants that exist within Malaysia’s financial ecosystem. For one, these grants usually require no repayment. However, there are different requirements for each option that you need to look into. These grants are usually aimed at helping businesses that focus on offerings that can help the community in some way.

The Tekun National (TEKUN) Agency, for instance, offers a number of financing schemes that are targeted at specific sectors. It’s managed by the Ministry of Agriculture and Agro-based Industry (MOA), and has a list of points that makes up their mission from providing aid and support to participants, elevating the entrepreneurship community for more progressive growth, instigating entrepreneur culture within the nation and assisting microfinancing facilities or working capital capabilities for small entrepreneurs with new startup businesses.

Another established body in the same category is MDEC (Malaysia Digital Economy Corporation Sdn. Bhd.), which has been helping to push Malaysia’s digital economy in the right direction for a long time now. The Digital Content Fund is government-supported and was designed to help creative content production agencies in the country. These companies focus on things like digital content, animation and game development.

The MTDC (Malaysian Technology Development Corporation) focuses on the commercialisation of technology-based businesses or the implementation of technology throughout the local business communities. They offer the Technology Acquisition Fund (TAD) which grants financing options for local companies who want to gain access to or commercialise foreign technology. Other than that, the Business Start-Up Fund (BSF) and Business Growth Fund (BGF) are also available.

Of course, most of us have heard of the renowned Cradle Fund Sdn Bhd Agency by now, which has helped grow more than 1000 Malaysian Tech-based startups across multiple verticals and sectors. They offer an ensemble of different programmes like the Accelerate programme focused on commercialisation for deep tech companies, the Coach and Grow programme that guides entrepreneurs throughout their journey, and the Angel Tax Incentive which helps encourage early-stage investments by offering tax incentives to angel investors who associate with companies.

#4. Conventional Loans

Conventional loans are the most mainstream way to seek financing, and government-based loans are at the forefront of the vast array of options out there. The main difference between loans and grants is that loans may have pay back requirements while grants are often free of repayment obligations.

However, there are a larger variety of loan schemes that cater to a more diverse range of startups, while grants are often smaller and more limited in quantity and offering.

An example of a loan is the Young Entrepreneurship Fund which is offered by SME Bank and focuses mainly on venture capital funds or working capital of companies. The loan offer can go up to about RM100,000 and there is an interest rate set at 5 percent.

The Graduate Entrepreneur Fund is similar, but bigger in its offering with a maximum loan size of RM500,000 and an interest rate of about 4 percent.

#5. Crowdfunding and P2P Lending

A more recent alternative to loans and grants is the crowdfunding and P2P (Peer-to-Peer) lending options. As a “power to the people” approach to financing, the influx of innovative platforms that cater to crowdfunding and lending efforts has struck up a big market that revolves around getting away from conventional financing methods and relying on each other as financing partners instead.

Crowdfunding is essentially pitching your idea to the mass public in hopes that a large monetary contribution accumulated from many participants is achieved. There are plenty of platforms for this.

There’s PitchIn, a Malaysian made crowdfunding platform for locals to utilize. It has a reputation for hosting projects that raised high funds and it even holds a record for the most number of backers for a single project.

There’s also MyStartr, a reward-based crowdfunding platform that’s focused more on the various creative projects that apply to games, art, design, music and even filmmaking. There are many more crowdfunding platforms that you may not have heard of, and one of them may just be right for you so do your due diligence.

#6. Financing from Venture Capitalists

A venture capitalist, otherwise known as a private equity investor, basically works to provide specific capital for companies that have the potential to grow big and grow fast. There’s a process of mutual interest involved in these arrangements, because venture capitalists invest in your startup in exchange for an equity stake.

This means they become your business partners in essence, and they guide you towards the objectives based on your agreement with them. Small companies with big ideas who are looking to expand should consider approaching venture capitalists.

Just be sure that you understand how it works; they will govern a large part of your company’s future and direction. If you’re okay with giving up a little control for the possibility of greatness, then this is the way for you.

#7. Financing from Angel Investors

Right beside the venture capitalist, is the angel investor – often seen as the less common and slightly nicer option of the two.

These investors are usually high-net-worth individuals who back up business startups with the funding they require, giving support in the initial phases of development which is when it’s usually the hardest to get any backing from other financing parties.

Sometimes, they fund you in exchange for ownership equity or a form of convertible debt. Sometimes, they fund you with very little conditions of repayment. If you can find an angel investor to back your budding startup, then consider yourself lucky.

Conclusion

While these are all valid sources for startup financing, not all of them might work for your particular case. It’s important to consider all the possibilities and base your decisions on the preferences, circumstances and requirements of you and your team.

 

Have we missed out on any other financing options in our article? Let us know in the comments down below.

 

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