Financial Guide for SMEs - SME Corporation Malaysia

Financial Guide for SMEsDisadvantagesDEBT EQUITY INTERNAL FINANCE• Ability to raise funds islimited by securityavailable.• Business may beexposed to financialrisks as a result ofinterest ratemovements.• Reduced opportunityto establish newexternal allianceswith potentialinvestors.• Loss of control andautonomy indecision-making(as other investorswill want a say in theoperation of thebusiness).• Greater pressurefrom other investorsto achieve growthand higher returns.• Need to identify exitstrategy.• Potential tighteningof operationalcash flow ifinternal finance isused for long-termasset purchases.• No credit history isdeveloped.• Potential loss ofmentoring frominvestor if equityfinance was analternative.• Liquidity exposure of ahighly geared structure.• Business opportunitiescan be lost throughtight cash flow.• Profitability can bereduced by highdebt-servicing costs.• Potential personalityconflict betweenowner and otherinvestors.• Additional costs ofequity process.• Greatermanagementreporting required.• Dividend paymentsby the business arenot tax deductible.• Length of time toraise equity canoften be lengthy.• Loss of income ifdividend paymentsare required.• No tax deductionsas no servicingcosts.90chapter 7-13 p79-181 Eng.indd 908/15/11 5:02:55 PM