A Guide To Understanding Startup Loans

Updated: 29/06/2023

One of the biggest challenges a new small business and startup must face is obtaining the capital necessary to support their initial growth. In this case, an entrepreneur can raise his own finance or seek other alternative methods such as startup loans to obtain the finances to continue operation and perhaps even grow at a later stage of the business.

Every startup business has different financial needs and timelines based on its objectives and startup culture.

What is A Startup Loan?

Startup loans are financing means that are meant to help with the financial needs of a new business. Business startup loans proceeds can go towards things like working capital; the purchase of equipment, machinery, supplies, inventory, and furniture; and the purchase of construction equipment or real estate.

Every country and its government has its own rules and regulations that they implement to provide startups with grants and startup loans. Just to put startup loans into perspective, take an example of the United Kingdom.

Startup Loans
Startup Loans: UK

The image exhibits the maximum amount of financing the government offers to startups, interest rates alongside the requirements to be able to qualify for being a startup.

Types of Startups

Before we get into detail about startup loans and it's alternatives, Silicon Valley entrepreneur, Steve Blank, describes there being six different types of startups that exist in today's business world.

  • Lifestyle Startups. They are self-employed individuals who work for no one, but themselves. In Silicon Valley, such professionals are freelance coders or web designers, who love their jobs, because of passion.
  • Small Business Startups. These are small businesses like bakers, hairdressers who basically run their business to earn enough of a living.
  • Scalable Startups. These are born to make it big someday. Twitter, Uber and Facebook are an example of such with a scalable business model constantly seeking capital for growth. Often scalable startups group together in innovation clusters.
  • Buyable Startups. These are born to be bought over by other larger firms at some point in their life cycle. Their goal is not to build a billion-dollar company, but to be sold to a larger company.
  • Large Company Startups. Changes in customer preferences, new technologies, legislation issues, new competitors create pressure, forcing large companies to create new innovative products for new customers in new markets, they either have to innovate or they go out of business.
  • Social Startups. These startups have the mission to make the world a better place, not from the perspective of wealth, but through an idea.

Alternatives to Startup Loans

There are various methods an entrepreneur can raise finance for their startup, this section is relevant for startups seeking loans in Malaysia. There are six main sources of startup loans in Malaysia: government funding, crowdfundingangel investorsventure capitals, self-financing and bank loans.

See our insights for further detail on Government Grants for Startups in Malaysia.

  • Family and Friends. Raising a startup loan from friends or family members or acquiring funds from people you know is a tried and proven method of getting a business off the ground. While your family and friends may want to support your venture, try not to rely on a handshake and verbal agreement if you borrow money from them. Instead, consider drawing up a formal loan agreement that covers all the terms and conditions regarding your funding, including when the loan must be repaid, what the repayment schedule should look like, and any interest rate to be charged. A formal agreement might seem awkward at first, but it preserves relationships in the long run.
  • Angel Investors. Angel investors are individuals with the money to back startups and aspiring business owners. Unlike venture capitalists, angel investors are generally solo and not involved with a board or firm. But, similar to VCs, angel investors generally expect a return on their investment, as they’ve purchased some form of equity or ownership from your company. More about angel investment and NEXEA’s role in angel investment will be discussed later in this article.
  • Venture Capital. A venture capitalist (VC) is a type of private investor who funds promising startup companies. Venture capitalists are often members of a larger venture capital firm. These firms often have boards that vote on which companies they’ll back.  If the company is chosen by the venture capital firm, a VC will reach out with a funding offer. Traditionally, venture capitalists buy equity in a company, meaning they expect a payout in one form or another, if and when the company is successful.
  • P2P Lending. Peer-to-peer (P2P) lending is a form of startup loans that enables individuals to obtain loans directly from other individuals, cutting out the financial institution as the middleman. P2P lending differs from crowdfunding, their primary difference is that money that is obtained through P2P, has to be returned whereas crowdfunding has no such repayment rules. P2P lending is regulated by the Securities Commission Malaysia (SC). Before you start investing in a P2P lending platform, check if it has been licensed under the SC.
  • Crowdfunding. In a scenario where a startup has little to no funding, crowdfunding is the way to go. Crowdfunding can be accomplished by holding local or digital events, but it’s more commonly accomplished through crowdfunding platforms, like Kickstarter or Indiegogo. These platforms make it possible for users to easily browse thousands of ideas and back the ones they’re interested in.
  • Government Grants. The government offers several types of small business grants for Malaysian businesses to help new businesses launch. For example, Cradle Investment Programme (CIP) — If you run a tech startup, check out this Ministry of Finance funding source designed to move you from the “great idea” stage to a functional business. Innovative tech ideas that show strong commercial potential are eligible for up to RM50,000 per idea. There are many other means of raising finance in terms of startup loan for new businesses that are supported by the government. See the available and updated list of government grants that are available for startups in Malaysia here.

Every business is unique. No funding solution is right for everyone, so think about where your business is and what you’re comfortable doing. Talk to a financial advisor or speak with a financial institution. 

Eventually, you’ll come to a decision that’s right for your startup and find the funding you need. From there, you can focus on bringing your product or service to those who need you most. Below is a video, summarizing these options for startup loan and how they work briefly, yet detailed.

Government Grants and Startup Loans for Small-Medium Enterprise in Malaysia (2020)

Government Grants (2023)

There are several ways to get financial aid for your SME in Malaysia. One of them is government grants for SME Malaysia. Below is a list of grants provided by the Malaysian government for startup loans.

Soft Loan for SMEs (SLSME)

The SLSME is assisting loans for start-up enterprises and existing companies including support of fixed assets and working capital financing.

Eligibility Specification:

  • SMEs incorporated under the Companies Act 1965
  • SMEs incorporated under Registration of Business Ordinance 1956
  • Malaysians held at least 60% of equity
  • Owns a valid premises license
  • Owns SMEs with shareholdings which not exceeding 20% held by public-listed companies. Only if applicable.

The financing amount given under the scheme depends on the type of finance provided – Project, Fixed Assets, Working Capital and IT Hardware / Software. The financial minimum amount is RM 50,000, but the interest rate is 4% per annum yearly.

Young Entrepreneur Fund (YEF)

The purpose of this startup loan funding by YEF is to help young entrepreneurs to start their new businesses and fulfil the needs of their existing enterprises. Still, the financials are limited to the range of RM20,000 to RM100,000 but gain the net profit rate around 5% per annum.

Eligibility Specification:

  • Malaysian citizens who age between 18 to 30 years old, owning a business.
  • Business is registered with Suruhanjaya Syarikat Malaysia (SSM) – include sole-proprietorship, partnership firm or Sdn Bhd company.
  • Partnership firm / Sdn Bhd company: the applicant must obtain more than 51% shares or majority shares in the company.
  • Own at least an entrepreneurship or vocational certificate.
  • Start-up companies that operated less than 1 year will be considered.

Business Startup Fund (BSF)

The BSF has been established to help fund new start-up technology-based companies, following to match their main objectives. Their objectives are to remove unnecessary obstacles and develop growth in the business in the company. 

Therefore, they provide fundraising to these companies with the amount of up to RM5 million or 90% of the total cost of the project. This funding period lasts for 6.5 years only.

However, 5 years are given for repayment period instead.

Eligibility Specification:

  • Should be incorporated under the Companies Act 2016.
  • Should a technology-based company – own a minimum of 70% Malaysian shares.
  • The product or service must be significant in novelty/innovation.

Skim Kredit Pengeluaran Makanan (SKPM)

The SKPM mostly startup loans towards those who want to develop more on the Food Business background of Food Industries in Malaysia. Thus, they have been trying to help the food production of SMEs to enhance their productivity and reach the business to a higher market level. 

Eligibility Specification:

  • Should be incorporated in Malaysia with SSM under Akta Syarikat 1965
  • Can be sole-proprietorship or partnership
  • Owns a valid business premise license
  • Only a Malaysian citizen is allowed to apply for the scheme
  • Can be individual or non-individual (food business based)
  • Should have at least 15% Malaysian ownership

With this scheme, SMEs gained loans up 100% according to their total project cost, which exceeded RM500,000. Besides, the fund is fixed at 3.6% per annum for the duration of 8 years.

NEXEA and Angel Investment

NEXEA and its Angel Investment Network provide startup investment opportunities to investors that are interested in high growth businesses. In some ways, for startup loans, angel investors are considered important because of their skill, experience and not just their capability to finance the business but also to mentor, lead and guide the entrepreneurs and their businesses forward.

Startup loans and investments are high risks and high return investment opportunities that should be part of any investor’s portfolio as this is the segment of the portfolio that produces good ROI.

Visit NEXEA’s Angel Investor to learn more about who are angel investors and how they can help you with startup loans as well as grow your startup.

On A Final Note

To conclude, there are many sources for you to obtain a startup loan within Malaysia. Before you decide what type of startup loans are best for you, make sure you consider all the factors:

  • Be self-aware. Before you do anything else, spend time evaluating your business and how lenders see you. A quick credit check will help you understand your score, which is one factor involved, but you also need to know your debt-to-equity ratio before choosing a startup loan.
  • Consider repayment terms. What is the length of time? What does the payment schedule look like? Can you pay off the startup loan early, or do you have to wait until maturation?
  • Take your time. The absolute worst thing you can do is rush into picking a startup loan option. Prematurely selecting startup loans, only to figure out a month from now that you chose the wrong one, can be devastating to your business. Be patient and carefully evaluate all of your options before proceeding too far in the process.

Below is a summary of all methods for startup loans as well as alternatives to raising capital for your startup:

Startup Loans
Startup Loans and Its Alternatives


Startup Loans in the U.K.

Government Grants for SME’s in Malaysia

Related Posts

Subscribe for more right in your inbox!

Thousands of subscribers cannot be wrong! Get Startup insights right in your inbox. 
We will only use your email to send you insights once a month - no spam!
Subscribe To Our Startup Insights
Join Malaysia’s Top Startup Investors & Corporate Innovation Event
Register for DisruptInvest Summit Now!
NEXEA LogoSubscribe & Get Startup Insights!