How Loan Management Is Crucial For Small & Medium Businesses

Loan management is an integral part of the organization’s asset-liability management. Loan management involves periodical sourcing funds by getting the same sanctioned or repaying it within a given period of time. This is ideally done by the corporate treasury department to meet the solvency norms and also to meet liquidity criteria. Apparently, loan management has become an utmost priority for several reasons connected with liquidity, solvency or higher goodwill for the organization. Organizations generally resort to a short term loan to meet the working capital requirement. This is available in the form of SME business loan Malaysia. Let us get into the detail as to how loan management is necessary and yet very crucial for small & medium businesses.

Managing loans for meeting short term liquidity – The corporate debt department is obsessed with the task of meeting short term liquidity as there may be situations where the company’s short term funds may get blocked in debtors, receivables or inventories, thereby extending the overall working capital cycle. Consequently, the CFO, in consultation with other officers, tries to get the short term loans churned so as to avoid any liquidity risk. The idea is to have sufficient and adequate short term funds intact so as to avoid the situation of running out of liquidity.

Managing loans for improving the cash flow – Having adequate cash flow is a big challenge for the organization, and in the wake of keeping itself sufficiently funded at all times, the organizations keep striving for low-cost funds. Whenever the organizations are offered a short term loan facility at low or competitive interest rates, it makes the best use of this opportunity in order to meet its short term financial obligations.

Managing loan for making best use of low-interest rates – In the entire financial and economic ecosystem, the financial players are always offering loans and credit facilities with a larger repayment cycle or with low-interest rates. This provides leeway to companies to avail better credit facilities. Availing short term loans by changing over to a new loan or by getting the loan restructured or syndicated provides the organizations with an option to reduce their short term costs by availing better opportunities in the overall credit landscape.  

Managing loan to pay interest arising on long term loans – This can be further understood that many times companies lack enough financial resources to pay back the loan on time, and to meet the criteria, they often resort to switching the loans with increased or slightly decreased interest outgo. Consequently, they, even in the absence of sufficient funds at their disposal, are successfully able to repay the loan. This entire account makes it amply clear the significance of SME business loan Malaysia.

Thus we see that short term credit facilities have found higher importance in the company’s run-up to position itself as a competitive and effective player in the industry. Companies have multiple goals to achieve as regards their asset-liability management. Managing short term loans or availing temporary credit facilities either has cost reduction or addressing liquidity concerns, or keeping the company solvent every time. The relentless research by the corporate finance team helps the companies to identify possible sources of funds and then selecting a feasible and possible option to meet the organizational goal of maintaining liquidity and keeping the company solvent.