Friday 29 Mar 2024
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KUALA LUMPUR (July 30): Business activities in the country have been in full swing for several months now, after two years of pandemic-induced movement restrictions. Demand has been strong since borders reopened, but the rising cost of raw materials, global economic uncertainties, and more pressingly, labour shortages have impacted the business growth of small and medium enterprises (SMEs).

Usually, strong orders from clients mean business owners will start thinking about making investments to meet the demand. However, at this point in time, very few SMEs are considering capital expenditure.

Besides, many SMEs are still operating under tight cash flow conditions, which was exacerbated by the long-drawn pandemic.

The SMEs’ hesitance to make new investments could exacerbate the moderating trend in approved domestic direct investments (DDIs), as compiled by the Malaysian Investment Development Authority (MIDA).

A moderating trend in approved DDIs raises concerns because of the significant role such investments play in the economy.

To this end, business groups note SMEs’ struggle to cope with loans, with an increasing number of businesses stepping forward for assistance to cope with their repayments.

The going gets rougher, as many of these businesses are also finding it harder to secure new loans to tide them over until their sales — and cashflow — are restored.

From Socio Economic Research Centre Malaysia’s perspective, the bankability issues with SMEs are due to a lack of proper documentation and financial statements. However, it says there are ways to bridge the latter’s financing gaps.

Meanwhile, SMEs may be seeking alternative means of funding since alternative financing providers are able to have faster turnaround rates and have less stringent approval criteria, among other benefits favourable to SMEs.

Read about it in our Aug 1, 2022 edition of The Edge Malaysia weekly.

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