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Alternative Business Financing

GOAL: To learn about crowdfunding an your alternative business financing option outside of the banking system and to identify the type of business conditions that suits it best
  1. Estimated Reading Time:  15 Minutes with Video
  2. Level: Intermediate
  3. Prerequisite: Business Owner…or You want to impress your boss!

If you’ve visited a few of my previous posts, it should be obvious by now that I am talking about debt-crowdfunding. The repeated beating of this drum is inspired by my continuous observation of business owners running into the open arms of the ever welcoming “Ah-Longs” for support. 

There is no lack of option going around but why do they do it? 

Truth is somewhere in between a lack of awareness, and the discomforting thoughts of having to move away from what they are already accustomed to – a quick extortionist loan with a monthly interest of 10% or more. 

For the latter, I have had some interactions with a few applicants and sadly, it is mostly the inconvenience of getting the required documents for the crowdfunding application that stopped them. With their regular loan sharks, its money first and paperwork later despite charging 10 times more. 

Cashflow problem is probably the least of their worry because laziness and stupidity eventually will cost them even more. They are digging their own grave without knowing it.

Alternative Business Financing facts

  1. Regulated by the Securities Commission of Malaysia. 
  2. The cost is about 1.2% to 1.5% per month, and the duration is typically 15 days to 180 days where you can pay every month or periodically at set dates. 
  3. Basic documents needed are the last few months of your company’s bank statement, management accounts, and audited financials, plus any other supporting documents (if applicable) such as Letter of Awards for some projects, invoices, sales forecast, ageing report, etc.
  4. Crowdfunding activities does not involve collaterals 
  5. This is NOT a bank loan, therefore, don’t expect coming to a crowdfunding platform thinking of getting a long term loan with a view to pay back in 3 to 5 years.

Common Complains

  1. If this is only for 1 to 6 months, then what good does it do for my business?
  2. Some licensed money lenders are easier with documents. You are not the bank, why can’t you do the same?
  3. Even better than money lenders – My “Ah long” send me money first, paperwork “belakang cerita”.

The scenarios below should address the concerns above.  

scenario one

You are subcontractor and you’ve just been awarded a large project requiring you to have 10 million ringgit to pay your own subcontractors, buy raw materials and other miscellaneous expenses. Let’s say that you managed to get 8 million Ringgit worth of financing for that project, where are you going to find the rest of it if your own reserve is less than 2 million? 

Crowdfunding is perfect for this. usually you won’t need all the 10 million Ringgit in one go. Typically they will be dispersed throughout several progress billing cycles that will last between 3 to 6 month per cycle. You can raise a crowdfund, settle them within a few months and repeat the process again as needed  

Scenario two

If you are an event planning company, we know that your clients are notorious for paying you more than 4 to 5 months after the previous events, and that was before the pandemic and MCO! 

You might be able to hang on for a while, but after 12 months of MCO even the best-run company will start to run out of juice, and pile pressure on their cashflow. What are you going to do? You can force your staff to take a pay cut to finance your next project, and face potential repercussions due to low morale, or…

You can crowdfund both the Purchase Orders for the new project as well as up to 85% from the value of unpaid invoices to plug the gap. For example, Proton and Pavillion owe you a combined $1000,000 from previous work. You can use these unpaid invoices to raise up to 850,000 Ringgit to finance your next project, take care of a few administrative stuffs, and handle staff salaries.  

Scenario Three

You are an FMCG retailer and you deal with Nestle and folks like them. it’s one of the businesses that thrived during the MCO. I mean, Malaysians can’t survive without our Nescafes and Maggie Mee so, in order to cope with demand during the MCO, you want to order extra supplies above your regular credit line from from Nestle, but Nestle only says “yes” is those extra orders are done in cash. What would you do?

You can crowdfund the extra orders, say for example, 500,000 Ringgit on top of your regular 500,000 Ringgit credit limit so that you now have a million Ringgit worth of supplies. Those things will fly off your physical and online store shelves within 45 days, thus allowing you to settle with an interest payment as low as 1.5% – 2%. That will still make you a handsome profit while practically doubling your normal sales volume!

The best thing about that is, You can repeat the cycle over and over again, and every time you settle your previous debts on-time, your financing rate gets better and your limit gets larger. 

The folks at Pharmaceutical retail, logistics and manufacturing can easily use the same concept. 

Check out This video explaining scenarios for the retail business

other Scenarios

There are countless applications for crowdfunding in B2B and B2C scenarios. Have a look at this video explainer to see just a few ideas.  

Since 2015, P2P platforms have disbursed more than a billion Ringgit to thousands of local Malaysia companies such as your self to finance anything from

  • car dealership,
  • government contractors
  • utility and solar panel contractors
  • purchase of universal life insurance,
  • developer offering crowdfunding for its potential property buyers
  • to finance franchise business 
  • …and more.

You are only limited by your own imagination and lack of experience in the subject matter. Contact us for a 121 consultation

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