Funding Your Start-Up Business
There are numerous costs involved in starting a business and one of the entrepreneur’s early challenges is in raising capital. If you plan on becoming a successful entrepreneur, you’ll need to be smart in raising the money and investing it wisely in your business. We highlight several sources of capital for start-ups.
For the aspiring entrepreneur, coming up with the capital required to start a business isn’t easy, especially with a mortgage and car loan to pay and a family to support. Despite the challenges, true entrepreneurs often find their way around to raise the funds needed to realize their dreams. There are several ways of raising capital, the most common being own savings.
But before you go around sourcing for funds, you’ll first need to ascertain how much you need, when you need it and what you are going to do with it. Listed below are several methods of sourcing for capital.
Business BOOTSTRAPPING in Malaysia
The most convenient method of raising funds is through your own means, which is also known as bootstrapping. Sources of funds include your savings, investments such as shares, unit trusts and property, your life insurance, etc. Apart from this, you can also obtain funds via personal loans, overdrafts and credit cards. Beware of credit cards though, as the interest rates are very high.
BORROWING FROM FAMILY & FRIENDS
Although borrowing from your family and close friends is considered informal, it is advisable to draw up a formal agreement on the terms and conditions of the loan, such as interest rate, tenure of loan and repayment schedule, to avoid any unnecessary disputes in the future.
FUNDING BY INVESTORS
This involves raising funds by selling a part of your business to individuals or companies or venture capitalists (VCs) who see potential in your intended business. To seek funding from investors, you’ll need to prepare a business plan to be presented. Your business plan must include the following details:
• Executive Summary – highlighting the main points to capture the reader’s attention
• Market Research – details of the market, competitors and potential customers
• Marketing Plan – how you will sell your products or services to your target market
• Financial Information – including profit/loss and cash flow forecasts
Banks lend money to existing businesses but for a start-up, it may be very difficult to get a bank loan without a track record. Just as venture capitalists, banks also require a sound business plan and must be convinced of the viability of your business before they agree to lend you money.
Banks normally need collateral, which is something of value to hold against the loan. It’s important to establish a good working relationship with your banker.
As a start-up, one of the banks you can approach is the SME Bank, which is a development financial institution and a wholly-owned subsidiary of Bank Pembangunan Malaysia Berhad. SME Bank’s mission is to facilitate the development and promotion of enterprising, committed and innovative SMEs across industries and phases of business growth.
SME Bank offers the SME Start-Up, which is targeted at new businesses and start-ups that have a prototype and are ready to commercialize their products or services.
The bank may be able to assist even those who do not have sufficient collateral or track record. To support greater entrepreneurship in Malaysia, the SME Start-Up has been designed for all new businesses across SME classifications and industries including ICT and agro-based activities and is specially targeted towards businesses with market-viable products or services ready for domestic and/or international commercialization.
Apart from SME Bank, corporations such as the Malaysian Industrial Development Finance Berhad (MIDF) also offer loans to start-up SMEs. You are advised to enquire with the many Government agencies and commercial banks to find out more about the loans available to new businesses.
GOVERNMENT GRANTS A HELPING HAND
One of the Government’s overall strategies of supporting local SMEs is in facilitating easier access to financing. The Government, through various ministries and agencies, provides financial assistance such as loans and grants to support the development of SMEs.
Matching Grant for Business Start-Ups
This scheme is offered by the Small and Medium Industries Development Corporation (SMIDEC) and provides assistance for business start-ups in the manufacturing and service industries (excluding insurance and financial services). Assistance is given in the form of a matching grant where 50% of the approved project cost is borne by the Government and the remainder by the applicant.
For enterprises in the manufacturing sector, incorporated under the Registration of Business Ordinance 1956, assistance is given up to 80% of the approved cost. The maximum grant allocated per application is RM100,000.
Cradle Investment Programme (CIP)
If you’re creative, innovative and aspire to be a technopreneur, you can get a head start for your idea with the CIP. The CIP is Malaysia’s first development and pre-seed funding programme for technology ideas. It enables budding innovators and aspiring innovative entrepreneurs to make the jump from just having an innovative technology idea to becoming a successful start-up.
The CIP offers conditional grants of up to RM50,000 per tranche per idea (up to a maximum of three conditional tranches) for innovative technology ideas with good commercialization potential, submitted by aspiring groups of technopreneurs. The CIP is managed by Cradle Fund Sdn Bhd, which is wholly-funded by the Ministry of Finance.
MDeC Pre-Seed Fund
This fund is introduced by the Multimedia Development Corporation (MDeC) to develop ICT business plans into commercial projects. The programme offers up to RM150,000 of conditional funding for local individual technopreneurs (not existing companies) to turn their business plans into viable projects.
This is a development programme that is not a pure grant and recipients will also benefit from mentoring services and the use of shared lab facilities at MSC Malaysia Status Incubators provided through MDeC’s Technopreneur Development Programme.
Raising funds is not limited to the methods discussed above. As what’s listed is not exhaustive, you are advised to find out more about the grants, funds and loans available to SMEs from the respective Government ministries and agencies. Do your homework to seek different avenues if needed. This is where a little creativity and a bit of thinking out of the box go a long way.