There’s little doubt that the COVID-19 pandemic has massively impacted all small and medium enterprises (SMEs) across the country. As most organisations are struggling to balance the books, here are some handy tips to help restructure your finances during this pandemic.
Understanding Financing Revised Payment Terms
During this pandemic, financing revised payment terms paves a way for SMEs to stay afloat, especially when cash flow becomes a massive problem. Therefore, most banks have opted to allow customers to take up this option, should the need arise. In some cases, this can also be initiated by the bank. The areas covered by these initiatives are Financing Restructuring and Financing Rescheduling.
Financing Restructuring & Financing Rescheduling (R&R)
Financing restructuring refers to the modification of the principal terms and conditions of the financing itself. This also includes possible changes in the overall type of financing.
Meanwhile, financing rescheduling points to the modification of financing repayment terms. In most cases, the principal terms and conditions of the contract are not changed significantly. However, borrowers are possibly entitled to lengthening their financing tenure and the revision of their monthly instalments to help suit their cash flow needs.
Benefits of Financing Revised Payment Terms
For starters, financing rescheduling allows SMEs to successfully navigate through temporary economic issues, including a pandemic. In doing so, this may provide businesses with enough time to normalise their cash flow situation and to avoid defaulting on financings. For banks themselves, a debt rescheduling represents a better option than a default as lenders will be able to keep up with their repayments.
Next, financing restructuring helps SMEs tweak their financial plans and opt for the best monetary aid based on the current economic situation. Together, financing revised payment terms also allows organisations to stay away from any legal action during an economic crisis.
Speaking of which, SMEs can ease their worries for a little longer, as banks will always try to offer solutions to the customer through refinancing and restructuring, instead of proceeding to taking legal actions right away.
Financing Revised Payment Terms with CIMB’s Payment Assistance Programme
Aiming to lend a hand to businesses in Malaysia and to fight through this pandemic, CIMB has launched a payment assistance programme. This effort is applicable to all existing financings for all businesses that are classified as SMEs, as defined by SME Corporation Malaysia.
Valid until December 31 2020, the term allows SMEs to step up payments where during the period, the borrower only serves a monthly interest/profit and a minimum principal sum.
The whole idea behind this is to ease up the SME's cash flow so that they can continue to run their business. So, here is what to expect when engaging with CIMB for a financing revised payment terms solution.
Before CIMB offer a solution, CIMB’s team will run a simple assessment to ascertain the customer's current financial footing. This includes areas such as sales turnover, cash flow, business operation status, and business repayment capability.
After the assessment, customers may be offered either one of the below two solutions.:
1. Extending Payment Tenure
This is essentially a reduction of monthly instalment according to the SME's affordability for a duration of 6 to 12 months. The duration will be decided on a case-by-case basis, and thereafter, the initial instalment will resume. The financing tenure will then be lengthened.
2. Revising Payment Terms
Unlike the former, this involves changes to the existing financing's terms and conditions (e.g. converting from an overdraft to a term financing). This change requires administrative work, which includes the administration of supplementary documentations as well as legal and stamping. Therefore, there would be some cost to be borne by the SME.
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