Different types of loan for doing business

With due respect to those qualified accountants and investors without having actual doing business experience, my advice is not to be too worried about listed companies having some borrowing when they select shares to buy. If they are too concerned with loan, they often miss out buying really good shares with tremendous profit growth prospect.

I am aware that a famous financial analyst who often posts articles on, emphasizes the importance of cash. He would not recommend to buy shares of companies which have loan.

They must bear in mind that in all business schools, MBA students are taught that to trade or do business with only their own capital is considered inefficient. They must borrow from banks or their parents to do more business. They must remember that the bank’s business is to receive cheap money from a lot of poor people and house wives and lend it to business men to help them to do more business.

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Ask yourself why do you borrow money to buy your house?

When I started Mudajaya and Gamuda in 1966 before they were listed and became IJM Corporation Bhd, I had to borrow as much as possible to do business. As construction contractors, we have great difficulty to borrow money because Banks would not accept bull dozers and other construction equipment as collaterals. They considered construction equipment unsafe as they were movable assets. We did not have fixed assets, like land and office buildings at that time. We even had to mortgage our family homes to borrow more money to do business.

Listed Company Status

It is every business man’s dream to list his company because the listed status is like getting a license from Bank Negara to print money. Initially he can sell his company listed shares for cash during the IPO stage and subsequently he can place out shares to fund managers. Moreover, the company get loan from Banks without his personal guarantee.

The first lesson I learnt how to borrow money from Banks without fixed assets was to assign our progress payment certificates certified by the official engineering consultants or architects. Banks would give us the money and charge interest while they waited for the actual payment from our clients.

Subsequently I learned more tricks to borrow money to earn more profit.

Currently I have tens of million ringgit margin loan from CIMB, Kenanga, TA Securities, HL Investment Bank and Maybank Investment Bank. I do not recommend novice investors to use margin loan to buy more shares.

Although I am not a qualified accountant, I know how to read and understand the company balance sheets. I appreciate when I see companies with loans of different types such as current and non-current, term loans, finance lease liabilities, unsecured term loans, Bank overdraft, short term loan, trust receipts, finance lease liabilities, acceptance certificates, revolving credit etc. With due respect, not all qualified accountants can explain the meaning of all these terms. I think some qualified accountants with actual experience in doing business, would be able to explain to you the meaning of all these terms.

Nevertheless, my advice is not to be afraid to buy shares from companies with loans, provided they have good profit growth prospect and they can make more profit in the current year than last year.

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