How SMEs can improve chances for getting funds

DESPITE significant government initiatives to bolster the growth of small and medium-sized enterprises (SMEs), including a noteworthy allocation of RM50bil under Budget 2026 and an additional RM10bil earmarked for financing and guarantees, many SMEs continue to face substantial challenges in obtaining financing from various banks.

The government’s strategy includes providing guarantees to financial institutions as collateral for SME financing through Syarikat Jaminan Pembiayaan Perniagaan (SJPP), which is under the purview of the Finance Ministry.

The Corporate Guarantee Corporation Malaysia Berhad (CGC), established in partnership with Bank Negara and a consortium of commercial banks, also plays a critical role in facilitating SMEs’ access to financing.

These initiatives are strategically designed to empower financial institutions to extend financing to SMEs, particularly those that may not meet traditional collateral requirements.

However, it is essential to recognise that while these guarantees are advantageous, a significant number of SMEs that do not meet current bankable criteria must also concentrate on other critical factors that banks evaluate when considering financing requests.

To start with, they need to understand the credit assessment process banks undertake upon receipt of a financing application.

Initially, banks engage in extensive reviews of both the business and its ownership structure through rigorous KYC (know your customer) and KYB (know your business) procedures. This thorough vetting process ensures that banks engage with credible and appropriate clients.

Following this, banks conduct assessments that focus on both business and financial risks, evaluating operational viability and identifying potential challenges that could impede future performance.

The financial analysis, which relies heavily on historical data, provides banks with insights into the company’s past performance and current standing. While historical performance does not guarantee future outcomes, it remains a vital indicator of the enterprise’s sustainability.

A crucial aspect of the evaluation involves conducting site visits, during which bankers assess key factors such as inventory management (to identify potential stock obsolescence), organisational structure, personnel qualifications and overall operational efficiency.

Only after these detailed assessments have been satisfactorily completed can a credit decision be rendered. If the application is approved, banks may impose security requirements, including government guarantees if the business lacks sufficient assets, as well as various financial covenants that must be adhered to.

In light of these comprehensive evaluation protocols, SMEs seeking bank financing must adopt several essential practices.

First and foremost, they should cultivate robust governance frameworks within their organisations. This entails maintaining precise and accurate financial records, ensuring the timely preparation of management reports and audited financial statements, and producing meticulous ageing reports concerning both suppliers and customers.

Such diligence enhances banks’ confidence in evaluating financial documentation and mitigates perceived financial risks.

Moreover, SMEs must develop a profound understanding of their business operations. This involves continually reassessing and optimising their business models to showcase scalability and long-term sustainability.

Ensuring operational efficiency that supports profitability is critical, as maintaining positive cash flow is foundational to an SME’s ability to sustain operations and fulfil obligations related to bank interest and loan repayments.

Effective engagement with banking representatives is another pivotal factor. SME owners should approach these interactions with professionalism, articulately communicating their business capabilities and growth potential.

This proficiency in conveying business objectives is crucial for fostering constructive relationships with financial institutions.

By adhering to these recommended strategies – strengthening governance practices, gaining an in-depth understanding of their business dynamics and fostering effective communication with bankers – more SMEs can increase their likelihood of securing bank financing.

DR EDDIE HU

Fellow Chartered Banker

Kuala Lumpur