Financial Guide for SMEs - SME Corporation Malaysia

Financial Guide for SMEsTypes of Security RequiredDEBT EQUITY INTERNAL FINANCELenders generallyrequire some form ofsecurity against thefunds that are lent to thebusiness. In the eventrepayment conditionsare not met, the lendercan call-up the loan andrealise the security.The level of fi nanceavailable is generallyrestricted or capped bythe level and quality ofsecurity available.Examples of commonsecurity required include:First or furthermortgages overproperty (this mayinvolve propertyowned by thebusiness or personalassets of the ownersor third parties);Fixed charge /debenture (coveringthe total assets of thebusiness); andSpecific assets (e.g.inventory / debtors,motor vehicle,equipment).Some lending can bedone without security,usually with a personalguarantee of the owners/directors. However, withhigher interest ratesrefl ecting the higher risk•••Equity investors donot require anysecurity against fundsinvested.The equity investor isproviding risk capitalbased on the potentialto achieve future profi tsand increased businessvalue.Equity investors rankbehind all otherunsecured creditorswhen the businesswinds up. For thisreason, they seek ahigh return on fundsinvested.Internal sources offinance do not requireany security as itis essentially usingcash held by thebusiness.85chapter 7-13 p79-181 Eng.indd 858/15/11 5:02:54 PM