Understanding Mid-Tier Companies and their Sources of Financing

Mid-Tier Companies (MTCs) are a key driving force behind the Malaysian economy, defined as companies with annual revenues between RM50 million and RM500 million in the manufacturing sector and RM20 million to RM500 million in the services sector. According to the Malaysian Consortium of Mid-Tier Companies, MTCs contribute approximately 36% of Malaysia’s GDP while comprising only 0.8% of registered businesses. They also account for 16% of the national workforce. These companies excel in high-value operations, adhere to international standards, and possess globally recognised certifications, making them vital players in the global supply chain and preferred partners for multinational corporations​.

Sources of Financing for Mid-Tier Companies

MTCs in Malaysia rely on a range of financing options to support their growth and operational needs. These financing sources cater to the diverse needs of MTCs, helping them manage cash flow challenges, expand their operations, and foster innovation while contributing significantly to the Malaysian economy.

Private equity and private credit funds are important financing options for MTCs seeking to invest in new opportunities. Private equity involves selling ownership stakes in exchange for funding, which provides not only capital but also strategic expertise.Private credit, on the other hand, offers tailored loans from non-bank sources with flexible financing terms. For instance, in a media release by the Securities Commission Malaysia (SC) in October 2024, Khazanah Nasional’s Dana Impak Fund was highlighted as a significant initiative to support the growth and expansion of MTCs by offering equity investment and strategic support.

Capital markets offer another key financing option. MTCs can raise capital through equity financing by listing on the stock exchange. While the process involves meeting strict regulatory requirements, the SC has introduced initiatives to help MTCs prepare for public offerings. For instance, in 2023, Malaysian MTCs collectively raised RM6.3 billion through the capital market. This highlights the importance of capital markets as a funding source and allows companies to expand their investor base and improve their financial stability.

Bank financing remains the mainstream financing option for MTCs. This includes loans, lines of credit, and overdraft facilities. These traditional sources are important for short-term liquidity needs and funding specific projects. However, challenges such as high collateral requirements often necessitate government-backed solutions. Government-linked agencies, such as the Credit Guarantee Corporation Malaysia Berhad, mitigate these challenges by offering guarantees that improve access to bank financing under more favourable conditions.

Government programs and grants play an essential role, especially for smaller MTCs or those pursuing innovation and market expansion. Organisations such as SME Corporation Malaysia and the Ministry of Investment, Trade, and Industry offer soft loans, grants, and other incentives to promote technology adoption, digitalisation, and export readiness. Such programs complement other financing sources that traditional financing might not address.

Investment notes represent a key form of alternative financing for MTCs. These debt instruments, facilitated by platforms like peer-to-peer lending, allow companies to raise funds from individual or institutional investors without resorting to traditional loans. For MTCs, investment notes offer flexibility and fast access to capital while allowing investors to earn competitive returns. This financing method has grown in popularity among companies with strong credit profiles seeking innovative solutions​.

Operational financing tools such as trade credit, leasing, factoring, invoice financing, and internal financing also play a critical role. Trade credit enables companies to defer payments to suppliers, which is important for businesses with liquidity needs. Leasing allows MTCs to acquire essential assets without large upfront costs, which improves operational efficiency. Factoring and invoice financing provide immediate cash flow by unlocking funds tied up in receivables, crucial for companies with extended payment cycles. Internal financing, leveraging retained earnings or cash flow, helps businesses fund growth without incurring additional debt.

In conclusion, MTCs in Malaysia rely on various financing options to support their growth and operations. By strategically utilising these sources, MTCs can address liquidity challenges, fund expansion, and foster innovation, making significant contributions to Malaysia’s economy.