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Private Sector Funding

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Some private sector alternatives for SMEs include:

  • Banking Institutions

    SMEs can approach Commercial Banks and Islamic Banks for funding, depending on their needs.

    Conventional as well as Islamic financing products are available for a wide range of needs. These would cover items like term loans, leasing and industrial hire-purchase for asset acquisitions or business expansions; overdrafts, revolving credit facilities and factoring for working capital; letters of credit (LC), trust receipts, banker’s acceptance (BA) and Export Credit Refinancing (ECR) for trade financing; and bank guarantee as well as shipping guarantee facilities.
     
  • Development Financial Institutions

    Aside from commercial banks and Islamic banks, there are also Government-backed Development Financial Institutions (DFIs) which can provide SME financing.

    For the list of DFIs, click on the link below :

    Development Financial Institutions (DFIs) :
    (governed by the Development Financial Institutions Act 2002) Other DFIs :
  • Leasing and Factoring Companies

    Leasing

    SMEs in need of expensive machinery need not only rely on hire-purchase arrangements as a means to financing their business.

    They can also choose to lease equipment, which would give them use of equipment owned by a leasing company, in return for regular lease payments over a specific period of time.

    This allows SMEs use of vital equipment without ever having to buy it.

    Any moveable asset can be leased. This includes office equipment, vehicles, industrial and manufacturing equipment, as well as construction and heavy equipment.

    Features
    • A facility which allows SMEs to lease equipment from financial institutions without having to purchase the equipment.
    • There are 2 types of leasing facilities available :
      1. Operating Lease
        Ownership is held by the financial institutions.
      2. Finance Lease
        Ownership is held by the financial institutions. However, the lessee has the option to purchase the asset at the end of the tenure.

    Benefits
    • Facilitate management of funds, as leasing instalments amount is predetermined.
    • For an operating lease, maintenance cost is borne by the lessor (financial institution).
    • Instalments paid for leasing are eligible for full tax relief.

    For further information on leasing companies, click here.

    Factoring

    SMEs can also choose to pledge their future income in order to obtain working capital. Factoring companies specialise in buying debt owed to a business, or account receivables, at a discounted price. If this happens, the factoring company will take over collection of the debt, while the company selling the debt receives money for a debt earlier, and up front.

  • For further information, click below :
  • Venture Capital Companies

    SMEs in need of capital injections might also look to venture capital companies. Venture capitalists willing to take a stake in a business will provide capital, usually in exchange for a minority stake in the company concerned.

    Businesses with expansion and the potential for and eventual listing on the stock exchange are favoured targets of venture capitalists. The money is often provided for long-term expansion projects undertaken by the company concerned.

    For further information on venture capital companies, click below :
 
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