Small and Medium Enterprises Association (Samenta) chairman William Ng said that many businesses are now turning to alternative forms of financing with higher costs due to difficulties in securing loans from banks.

Ng urged the government to identify a broader set of criteria that banks can rely on when they process applications for loans.

“The time has come for banks to show greater flexibility by considering alternative data for loan approvals, including business data such as sales trends, asset ownership, and market leadership,” Ng told online news portal Free Malaysia Today (FMT).

He said alternative sources SMEs are looking into include peer-to-peer (P2P) financing or unlicenced moneylenders that offer loans with much higher interest rates.

He cited poor documentation and unfavourable financial results as among reasons SMEs have failed to secure bank loans.

“The pandemic affected the ability of many SMEs to operate. As a result, their financial records for 2020 and 2021 have turned out to be less than ideal.

This makes it difficult for banks to approve loans to them,” he was quoted saying.

A Samenta study in July revealed that a lack of working capital and insufficient cash flow also lower the chances of SMEs securing a bank loan.

Maybank’s head of community financial service, Hamirullah Boorhan, however told FMT that the approval rate in the second quarter of this year (2Q22) was much higher than the same period last year.

“The approval rate increased by 21.7 per cent, driven by higher loan applications received,” he added.

He suggested that businesses must maintain proper financial records and show clarity in their cash flow projections.

“This is important because it shows the repayment ability of the company’s current business operation,” Hamirullah reportedly said.

Source: Malay Mail