Bank-based short-term funds: supporting working capital and business continuity

Efficient working capital management is crucial for business continuity, particularly in economies like Malaysia, where small and medium-sized enterprises (SMEs) form the backbone of the industrial structure (SME Corp Malaysia, 2023). Bank-based short-term funds serve as a mechanism for financing operational expenditures and bridging cash flow gaps for SMEs and other businesses. A bank generally offers credit facilities to finance working capital, capital investments, property acquisitions, transactions, or contract-based financing, as well as to support seasonal needs (Bank Negara Malaysia, 2023). The nature of the business and the industry in which it operates significantly influence its financial requirements, whether for operational expenses, capital investment, or other financial needs. Working capital is the amount of funds required to finance a business’s day-to-day operations and is calculated as the difference between current assets and current liabilities. A positive networking capital indicates that a business has sufficient short-term assets or liquidity to meet its current obligations. The amount of working capital facilities is typically assessed based on the cash conversion cycle (CCC) relative to sales. The CCC represents the period from the purchase of raw materials to the collection of sales proceeds, which essentially shows the number of days during which the company does not generate cash inflows from operations.