KUALA LUMPUR: Malaysian small and medium enterprises (SME) expect to encounter difficulty in accessing extra finance this year and next due to tighter lending conditions and the higher cost of finance, according to Alex Malley, CEO of CPA Australia. He was citing the professional body’s 2011 CPA Australia Asia Pacific Small Business Survey.

Of the six markets covered by the survey (Australia, Singapore, Hong Kong, New Zealand, Indonesia and Malaysia), Malaysian businesses found it the most difficult to access finance in 2011, due to the tightening of credit in Malaysia since Bank Negara Malaysia started its rate normalisation back in 2010.

“They are reacting [to tighter borrowing conditions] in a different way ... One of the things that surprises us is that the source of funds SME are recording, the sale of assets, is one of the top sources of revenue they are expecting next year. But then again, it’s recognising they need to be cautious and if they have any assets they don’t need they should sell them and use that money,” Malley told The Edge Financial Daily recently.

According to the survey, two-thirds of the respondents who found it difficult to access finance cited the terms and conditions imposed by financiers as a key reason for the difficulty. The respondents also said it was difficult to find financiers to fund particular industries and that they received less funding than they sought.

The survey shows that a large proportion of Malaysian businesses believe that business growth, cash, profitability and sales have been impacted by the difficult financing conditions. The highest response on the impact was in regards to stock purchases, which may indicate that these businesses were looking to increase stock levels in anticipation of business growth, according to Malley.

Malley says there is still optimism among Malaysian SME that their businesses are going to grow next year.

Despite the difficult access to financing, some 56% of SME believed they will be increasing their loans in 2012, compared with 39% who said so in 2010. There is also an increase in the number of businesses expecting to require additional funding in the coming year, almost 85%, from 73% which said so in 2010.

Although the primary source of funding continues to be banks at 64% and family and friends at 59%, the use of own resources and sales of assets as funding sources showed a marked increase from the previous year, according to the survey. Responses from Malaysian businesses showed that funding for business growth has slowed during 2011, while funding business survival, sales, stock and assets remain at similar levels.

“There were some results in this section that say some people were getting funds for survival and not for growth. This again comes back to the short-term mindset, that we need to survive next year then we worry about the year after, which is fine in difficult times but you have to have a longer term vision. So there’s a little bit of risk in small businesses at the moment, even in Malaysia, around the longer-term vision for the business,” he commented.

Of those who did not seek additional funding in 2011, 36% made the choice based on the risk of default, 34% said they expect interest rates to remain high while 25% stated that the process is too complicated and it takes too long, said Malley. 

Nevertheless, according to the survey, fewer Malaysian businesses expect accessing finance to be difficult in 2012 as most are expecting a loosening of lending conditions next year.

Even though the global economy is expected to be slower, Malley said that there is still optimism among Malaysian SME that their businesses are going to grow next year. In fact, 84% of SME in Malaysia felt that they would have strong or slight growth next year compared with about 77% who felt so last year.

“Fifty-nine per cent of those surveyed felt that the economy, hence their businesses, would grow in 2012, which is quite a good percentage in comparison to others. About 28% think the economy will shrink in 2012 ... In Malaysia there is confidence in private consumption ... they feel there’s a good drive, good demand in the domestic economy, which is good because if you look at the export markets like Europe and the US, they are not that strong,” said Malley.

On the reason CPA Australia surveys SME in the region, Malley said that the pattern of behaviour is the same between small businesses and large corporations, although the size of the business is different, because whatever affects small businesses can affect large businesses as well.

“Small businesses tend to make money in and around big businesses, like a big ship with the little boats around it, so if things are slow in the big ship the boats will slow too. So we find if we know what the little boats are doing them we tend to know what the big ship is thinking too,” he said.

The 2011 edition is the third year of the CPA Australia Asia Pacific Small Business Survey. It comprised a total sample of 1,533 respondents of which 201 were from Malaysia. The survey was conducted from Oct 6 to Oct 11 and included businesses with less than 20 employees. According to CPA Australia, the respondents were either owners or senior staff, such as managing director or chief financial officer of a particular small business entity.

The estimated annual turnover of the businesses surveyed varied with half at less than RM600,000 per year, 32% within RM600,000 to RM1.5 million per year, 1% were in the RM3 million to RM6 million range of turnover per year, 3% were in the range of more than RM6 million with another 8% preferred not to disclose the amount.


This article appeared in The Edge Financial Daily, November 14, 2011.