Financial Credit Solutions, Loan and Credit Management
Any entity be it individual or business will have to deal with loans and credit. This is an inevitable area which must be addressed as it contributes to the overall financial health and planning of the entity.
Loans refer to property, hire purchase, business and other borrowings from financial institution. While you might have engage a loan prior to carrying out any form of financial planning, recognizing your current loan situation and amortizing them makes a big difference on how you can continue maintaining a good financial status.
In terms of credit, this can refer to problems related to credit cards, building your credit status and issues relating to the likelihood of an individual or the business. Managing credit is to look into how far you are in clearing your debts and what your future options would be. For individuals, solving credit problems and building good credentials would be the main related issues.
What is loan
Loan refers to something that is borrowed especially money. In short, loan simply means debt. After a specific period of time, loan requires redistribution of financial assets. The process of loaning begins when an individual or more commonly known as the borrower acquires an amount of money from lender/principal. Bear in mind that over time, borrower must repay an equal amount of money or sometimes including interest.
In most situations, borrower will return the money on a regular basis called installments. Each payment made must carries the same amount. As mentioned previously, borrower must repay the loans together with interest which serves as an incentive between both parties.
When a borrower receives an amount of money from a legal firm, he or she must sign a contract that will list down obligations and restrictions called loan covenants. Basically, there are several types of loans available for borrower. Loans are usually categorized under secured or unsecured loan.
The term ‘secured loan’ refers to loan in which borrower pledges some asset in return for the loan. These assets usually come in the form of property to ensure that the borrower has the capability to repay it in a specific time in the form of monthly installments. In addition to that, borrowers will also pledge car as collateral for the loan.
Perhaps, one of the most widely known debt instrument is the mortgage loan. Mortgage loans are frequently used to purchase housing. The specific amount of loan is used to pay off the property. However, in most of these cases, lender or financial firms are given security which is lien on the title to the house. The lien is active right until the mortgage is paid off. Thus, when the borrower lost the ability to pay installments, then financial firms have the rights to reclaim the ownership of the property and sell it to regain the specific sum.
In some situations, borrower may use up the loan to purchase car. The obligations and restrictions for purchasing a car is similar to mortgage loans. However, duration of loans for car is much shorter compared to mortgage loans. Financial firms such as banks usually offer two types of auto loans namely direct and indirect.
Bank gives loan directly to borrower for direct auto loans while indirect auto loans is whereby car dealership acts as an intermediary between the customer and financial firm. Among other secured loans available are stock hedge loan, pre-settlement loan and recourse note. Stock hedge loan is a type of security lending in which borrower’s stock is hedged by the lender should the lender suffer loss while pre-settlement loan is a type of non-recourse debt whereby monetary loan is awarded during a lawsuit case. However, pre-settlement loan is only available in several lawsuit cases. Lastly, recourse note is used in most of the limited partnership agreements.
Unsecured loans are totally different from secured loans whereby monetary loans are not secured with borrower’s assets. There are several unsecured loans namely credit card debt, personal loans, corporate bonds, bank overdrafts and also credit facilities. Usually, rates for these loans vary as it depends solely on the lender.
Five types of financial loans by SME Bank
SME Startup is a type of financial loan suitable for entrepreneurs who would like to venture into manufacturing and also manufacturing-related services industry in Malaysia. The loan dispersion depends on the size of your company ranging from micro, small to medium. In order to be eligible for SME Startup loans, borrower must think and create a unique idea and explain how it can turn into a profitable and rewarding business operation. The financing limit as pre-determined by SME is up to RM10 million. However, the loan amount is subjected to terms and conditions.
To venture into franchising industry, it requires large amount of capital as it covers the rights to sell particular product and service that comes together with basic training and workshops to help beginners to flourish the business. However, conducted correctly, franchise often gives you rewarding returns in a specific period of time. Thus, you need to run the business properly and pay attention in every single detail by acquiring guidance form Master Franchisor. Again, the biggest challenge to start up the business is to have capital. SME Bank is here to help you solve the matter and it offers up to RM3 million subjected to terms and conditions.
Unlike SME Startup, SME Professional is designed for the growing services sector in the country. According to a research conducted by an independent company in Malaysia, service sector by far is one of the fastest growing industries overtaking other sectors namely manufacturing sector in the past few years. SME offers loan up to RM10 million which is also subjected to terms and conditions. The introduction of this package is meant to assist entrepreneurs to set up their business in this sector.
SME Procurement offers financial loan up to RM50 million will definitely help Original Equipment Manufacturers (OEMs) to compete against other conglomerates in the sector. In order to remain strong in the market, corporations need extra capital investment to expand the business. Thus, SME Procurement is here to help out those in need in terms of purchasing more equipment, hiring more skillful manpower and also to flourish the business.
Lastly, the emergence of SME Global loan is meant to help ambitious young Malaysians to achieve their dreams of expanding and venturing into international market. Part of Ninth Malaysia Plan encouraged operators to venture into overseas market to help build reputation and image in international arena. Thus, SME Global offers up to RM50 million to facilitate companies in this specific area.