When it comes to business, money is everything. This is equally true for new startups and companies that have been firmly established for years. Knowing that money is required is only the very beginning. The difficult part is in knowing how to go about acquiring funding. This guide is here to help outline the process of business borrowing in Malta by showing some of the more common options available.
What are the Options?
Finance comes in different types. Before it is possible to decide which type is required, it is important to understand what the options are.
Broadly speaking, finance falls into two major categories. There is working capital finance and then there is asset finance which means goods that are of a capital nature.
Working capital finance is when money is borrowed to cover the overheads of running things on a day to day basis. It is then paid back from money gained from incoming sales or debtors and there is bank interest paid every six months.
Asset finance is often spread over a much longer period than working capital finance. It is the financing of good and products that are of a capital nature and can be paid back slowly from profits once every quarter or every month.
Once it is understood which type of finance is required, it is possible to make an informed decision on the correct business borrowing solution.
Short-term Working Capital Finance
As it is a short-term capital requirement, the needs of a business for working capital finance constantly change.
In Malta, the following working capital finance options are usually provided by one of the local banks. Overdrafts cover short-term changes in cash flow and is a flexible way of borrowing that is reviewed annually. A business credit card can be used to cover everyday expenses and sometimes come with additional benefits. Invoice financing involves raising cash by presenting existing invoices as proof of future income. Various trade-related guaranteed can be made when bidding for or undertaking a project from the local government or council. Bills for collection and letters of credit can be created to safeguard imports and exports.
Asset Finance
Asset finance is a form of business borrowing that tends to cover improvements to the premises, equipment purchases, machinery or other tools and anything else of a capital nature that would usually be financed by a loan with a fixed term. Loans are best suited for long-term financial propositions and there is usually a choice between a business loan and a commercial mortgage.
Alternative Finance Options
While there are other sources of finance available in Malta, it is always best to discuss these with a financial adviser first. Additionally, there may be announcements made in Malta or the rest of the EU that allow access to some kind of scheme or grant as a form of business borrowing.
Applying for a Business Loan
In order to apply for a business loan various pieces of information usually have to be provided. This includes the details of the owners and the business. The aim is to demonstrate how the business functions and how it is going to utilise the skills of the owners and any staff to make a loan a wise decision. The amount currently invested in the business is also required in order to judge the proportion of the loan compared to the existing investment. The purpose of the loan must be clearly stated in terms of immediate plans and future goals.
Of course, in order to apply for a loan, the amount required must be known beforehand. The proposed term of the loan is also important for negotiating a repayment plan. This repayment plan must also be discussed as the investors must be made confident in the business owner’s ability to successfully repay it. For a new business, this likely means providing a solid business plan and forecasts for the cash flow.
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