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Financing Tips for Small Businesses

August 27, 2014 | Sharon Cheong

One of the major challenges that small business owners face is funding for starting and operating the company. Securing financing for a small startup company may not come easily for small business owners because of a notion that they are not in control of their finances. It has been said that small business owners figuratively bury their heads in the sand and hope for the best when it comes to managing their financial affairs. 

A small business owner often fails to secure financing for his business due to unclear business plans and incorrect forecasting of the company's budgets, financial targets, cash flow, and profit and loss.

For a small business owner to get financing from a reputable lender such as a bank, he must be a specialist in his industry and should have the knowledge and skill to handle the finances of his company. 

Solid Business Plan

Before a small business owner can obtain funding for his company, he must have a solid business plan. A business owner should be able to show investors and lenders a business that has the potential to show a good profit in a short period of time. It may seem that the higher and faster ROI, the better one's chances of obtaining financing. However, investors prefer realistic profit estimates backed by studies and documentation.  A small business owner must not try to falsely inflate probable revenues in when discussing a bank loan or investment from a private entity as this would only jeopardize his chances of obtaining financing for his business venture. A banking institution will scrutinize a small business owner to see if he has the confidence and ability to pay back the loan on time. A private investor understands that it takes years before enjoying a return of his investment. To obtain financing, it is best to present a realistic income and projected growth of the company.

Contract Agreement

Funding for a business can come from various sources.  A bank or a financier is more likely to afford a loan for a small enterprise. The business owner can sell shares of his business to private investors. It is possible to get financing from a family member or from a friend.  No matter, it is imperative to use legal agreement. A contract not only legally protects the business owner and financier/investor: but also stipulates the loan's terms of the agreement such as payment provisions and rate of interest. The concerned parties all get the signed terms of agreement contract. This way, everything pertaining to the financing loan is in black and white.

Update Data

A hands-on businessman should keep track of individuals and other entities that loaned him money or have offered to lend him money for his business.  This way, the business owner will have an accurate record of his loans, including payment terms and interest rate. In the event that he needs more financing, then he could go to the lender with the best payment terms and lowest interest rate. It is easier to keep an updated record that tries to backtrack and update records when applying for a business financing loan.

Improve Chances of Getting Funded

Banks, financiers and private investors want to see a good business plan that outlines a good ROI in a realistic time frame.

A good business plan should point out a defined market for the product or services.  The market should be large enough and with a high potential for growth.  The business plan should present the advantages of the product/service and expound the competitive edge of the product/service over rival brands.

A small business owner should be able to control the quality and delivery of the product/service.  Employees should be knowledgeable and experienced in their assigned work for a successful company.

Showing other investors and financiers that family members of the business owner have invested in the business is a good sign. How can others believe in the viability of a business if family members and friends of the business owner are in doubt?  Investors and lenders favor small businesses with financial stake from the business owner, and his family and friends.

Presenting a well-defined, well-thought-of, workable stratagem to get a business up and running is favorable. A clear and realistic ROI, financial projections, including positive and negative scenarios must be part of the business plan.

A lot of small business owners are caught short when applying for financing because they have underestimated the amount of money they need to start and run their business.


Most young and new entrepreneurs fall into the trap of over-investing in the business. They should focus instead on how to build a great product and increase customer base. A business owner must pay himself a salary and not just get money from the cash register at will.

If you are looking for financing for your business in Malaysia, look for a trusted name to help you. Call Servcorp now.