Article 10 – When the funding is right

by Tan Thiam Hock

Twenty years ago, Standard Chartered Bank recalled a loan to our rubber glove business because some Gweilo in London decided that the examination rubber glove industry was going to implode due to overcapacity. Despite explaining to them that we produce household and industrial gloves and not exam gloves, they still insisted that we repay the loan within 3 months.

My partner lambasted me for working with foreign banks. Why did I not stick to the local banks that we have been working with? Bangkok Bank, OUB and UOB. You must understand my partner’s family have been trading in Thailand, Singapore and Malaysia for many years and these were local banks to his family. Banks that approve loans because of his name and releases the money once he puts his signature to paper.

Since then, I have not had any business dealings with these Gwailobanks and I have thrown away all bank cards with “Relationship” printed on it. I am just too fragile to take another heartbreak.

New look: Under the ETP TUKAR Programme, registered kedai runcits have access to a RM60,000 loan from Bank Kerjasama Rakyat at 3% interest to modernise their store. This could be opportunistic financing coming from government initiatives.

To entrepreneur wannabes without rich parents, you might have the most brilliant idea or concept or best product but if you do not have the funds to start the business, you will remain a wannabe.

Raising sufficient capital and financing remains the most difficult task for entrepreneurs whether during start up or while going through rapid growth.

Conservative financing normally comes from partners, personal savings, family/parents and sugar daddies. Partners because of trust and profit motivation. Family because of love. If you are playing the role of a mistress and your sugar daddy refuses to finance your business venture, that’s because he loves his money more than you. It’s time for you to move on while you still look good.

It is conservative because you do not have to pay back. Maybe I should include government loans/ grants but that’s another story.

Operational financing comes from suppliers, customers and your reputation. Back in the 80s, it was common practice for property developers to drag payments due to their main contractors. And that’s after collecting deposits and progress payments from house buyers.

If the market turns bad, they will contra their debts by offering properties to their suppliers. If you stretch your payments from 60 to 120 days, you automatically reduces your cash-flow requirements substantially.

If you can get your customers to carry an extra month of inventory or to pay you a month earlier, your cash-flow instantly improves. Just remember these sources of operational financing only work when you are struggling in the beginning or when you face hard times. When your cash-flow improves, revert to a more equitable and fair system. Look after your suppliers and customers who have supported you.

Always under promise and over deliver. Keep your word and you will build a reputation that is worth at least 120 days credit.

Professional financing comes from all kinds of bank loans and facilities, venture capital and the stock market. Without collateral or a rich guarantor, it is impossible for a new entrepreneur to raise financing from commercial banks.

When you do get some facilities from the banks, make sure you do not misuse the funds.

Don’t buy horses when the loan is to be used for buying cows. You will look even more of an idiot if you use it to buy fixed assets like condos. Never use operational funds to buy fixed assets. You should stay asset light until you have excess cash-flow to spare.

You need a viable plan and brilliant salesmanship to raise funds from venture capital. Since you can’t outsmart them, promise them heaven high margins, good cash-flow and quick returns. If their greed bites, you are on the way to being the next Mark Zuckerberg.

If you managed to list your company, avoid being the biggest in your industry. It might just attract the attention of PNB. But if you plan to exit, by all means, be big and loud. My guess is by 2020, EPF, PNB and Khazanah will collectively own at least 50% of our top 100 listed companies.

Entrepreneurs should not despair. In fact, from my observation, the penny stock shareholders make the most money, and tax free too. Size in this case, does not matter.

Opportunistic financing comes from government initiatives. Like the ETPTUKAR Programme, registered kedai runcits have access to a RM60,000 loan from Bank Kerjasama Rakyat at 3% interest to modernise their store. Pemandu did a brilliant job by getting the major hypermarkets like Tesco to provide FREE management and technical skills to these kedai runcits.

From being blamed for the demise of the kedai runcit by politicians for the last 10 years, the major hypermarket operators have become saviours to hopefully 5,000 entrepreneurs. The other 20,000 kedai runcits are advised to close shop now as there are plans to open another 61 hypermarkets, 163 superstores and 356 supermarkets under the ETP program by 2020.

I have been informed by Pemandu that the KR1M shops do not fall under the purview of the ETP TUKAR program. It is under the Government Transformation Program (GTP) and Mydin was chosen to champion this project. The GTP’s noble intention is to deliver immediate benefits to the rakyat who need it most, hence the supposedly low prices being offered.

Generally, GTP projects are financed by Government grants/loans and from my simple calculation of RM200,000 set-up cost per shop, Mydin should be able to open 200 KR1M shops. Hopefully, we will have a local retailer who can now match the foreign owned Tesco and Giant behemoths.

Again, small entrepreneurs should not despair. Be creative. Just a few ideas to get you started.

Propose TOSAM1M to the Education Ministry and ask for a grant of RM100mil. You can now open 1000 schools to provide free Tuition On Science and Math in English to needy students for the next 10 years.

Or, propose ST1M and ask for RM200ml grant. You will now be able to upgrade 20,000 restaurants in your Superclean Toilet campaign. A benefit much needed by the suffering rakyat.

But do hurry with your proposals as this window of opportunity will only stay open until the next General Election. Or you can start looking for another sugar daddy on your own.

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