The Malaysian Government announced a critical enhancement to the Business Financing Guarantee Scheme (BFGS). This development raised government-backed guarantees consist of RM1 billion and an additional RM500 million for soft financing via development financial institutions.
These measures signal a strategic response to the economic strain imposed on Malaysian small and medium-sized enterprises (SMEs) by recent tariff measures from the United States.
Declared under the “Liberation Day” trade policy in April 2025, the US introduced a 24% reciprocal tariff on Malaysian imports, later revised to a temporary universal 10% tariff.
While this revision provided short-term relief, it highlighted an urgent need for policies to protect Malaysia’s SME ecosystem from trade uncertainties.
SMEs are the backbone of Malaysia’s economy, significantly contributing to the GDP and employment landscape. Ensuring their survival and competitiveness is essential for Malaysia’s economic resilience amidst global trade disruptions.
The enhanced BFGS, complemented by soft loan initiatives, aims to alleviate immediate financial pressures while fostering longer-term economic stability and diversification strategies.
This blog explores the Business Financing Guarantee Scheme, its objectives, benefits, eligibility criteria, participation process, and the link between these initiatives and the challenges posed by US tariffs.
Deep Diving into the Business Financing Guarantee Scheme (BFGS)
1. What is the Business Financing Guarantee Scheme?
Announced during a special parliamentary session, the Malaysian PM increased government guarantees under the BFGS measure consist of RM1 billion. This scheme is critical in providing liquidity for Malaysian SMEs impacted by tariffs.
By offering guarantees to commercial banks, the Government reduces lending risks, encouraging banks to offer loans to SMEs that may otherwise not meet strict credit requirements.
The addition of RM500 million for soft loans, channelled through development financial institutions, further reinforces this framework by offering lower borrowing costs to SMEs, ensuring both accessibility and affordability.
2. Objectives and Reach of the Enhanced Scheme
The primary goal of the BFGS is to ensure SMEs gain easier access to financing. Key objectives include:
- Risk Mitigation for Banks: By guaranteeing up to 90% of loans, banks are more likely to approve financing for high-risk SMEs.
- Preserving Employment: SMEs employ a large share of the national workforce; financial stability within the sector helps maintain jobs.
- Encouraging Resilience: The financing enables businesses to diversify export markets or enhance operational efficiency to stay competitive.
- Economic Continuity: Sustaining operations within key sectors helps stabilise Malaysia’s GDP and economic activity.
Considering the evolving trade environment, the government’s dual focus on providing immediate relief and supporting long-term adaptation strategies is key to ensuring SME resilience.
3. Eligibility Criteria for BFGS
Eligibility plays a pivotal role in ensuring that the right SMEs gain access to funding. While details on the RM1 billion enhancement have yet to be announced, existing schemes under Malaysian government financing typically require applicants to:
- Be Malaysian-controlled, with at least 51% Malaysian ownership;
- Be registered with the Companies Commission of Malaysia (SSM) or other relevant authorities;
- Demonstrate operational challenges caused by US tariffs, such as export dependency or direct involvement in affected supply chains.
Under guidelines from SME Corp Malaysia, definitions of SMEs typically include turnover and headcount thresholds, enabling stricter targeting for aid. These focused criteria ensure resources are allocated where the need is most urgent, safeguarding industries significantly impacted by tariffs.
Source: SME Corp Malaysia
4. Guarantee Coverage and Financing Limits
A hallmark of the BFGS enhancement is its significant guarantee coverage and loan capacity. Such schemes typically cover 70% to 90% of the financing amount. The announced RM1 billion allocation is designed to back a large pool of loans, enabling SMEs across sectors to maintain financial stability.
Additionally, soft loans of RM500 million offer exceptionally favourable terms compared to standard commercial loans. The combination of high guarantees and affordable borrowing options underscores the Government’s commitment to mitigating the economic impact of tariff impositions.
5. Participating Financial Institutions and Application
If your business qualifies, applying for the scheme involves your preferred commercial bank or participating financial institution.
The active collaboration between government bodies, banks, and development finance institutions is critical to expediting loan approvals, helping SMEs secure timely capital during trade uncertainty.
The US Tariffs and Why Financing Guarantees are Essential
1. The Announcement of US Tariffs
April 2025 saw the US enact a reciprocal tariff of 24% on Malaysian imports. Though paused for review and substituted by a universal 10% tariff, its ramifications for Malaysian exporters remain severe.
The long-term uncertainty surrounding tariff adjustments has diminished Malaysian competitiveness in the US market. SMEs relying on US exports (which formed 11% of trade in 2024) feel the immediate ripple effects due to higher costs and weakened demand.
2. SME Sectors Most Impacted
Several industries face pronounced challenges due to the tariff changes:
- Electronics & Electrical Goods face cost escalation and potential exclusion from the supply chain if US demand declines.
- Furniture, a major Malaysian export, is uniquely affected by price-sensitive US consumers.
- Rubber Glove Manufacturers still maintain demand but are navigating tighter profit margins.
Addressing these disruptions is vital for protecting Malaysia’s overall export portfolio.
3. How Financing Supports SMEs Amid Tariffs
The enhanced BFGS acts as a buffer, enabling SMEs to tackle the immediate financial strain of export losses. SMEs can leverage the funding for:
- Diversifying Markets: Identifying alternative export regions such as ASEAN or Europe.
- Automating Operations: Investments in technology to reduce production costs.
- Working Capital Needs: Smoothing cash flow challenges while awaiting demand recovery.
By engineering a lifeline for SMEs, Malaysia’s Government is actively safeguarding employment, innovation, and business sustainability amidst fluctuating trade policies.
Enabling Growth Through Resilience
The BFGS and accompanying soft loans represent far more than economic relief; they are tools for creating resilience among Malaysian SMEs.
By mitigating the direct impacts of US tariffs, the Government offers affected enterprises the breathing room needed for strategic pivots and sustainable growth.
SMEs must now utilise these funds effectively—whether through exploring non-US markets, optimising operational efficiencies, or digitalising processes to enhance cost structures.
Collaboration between stakeholders is critical to ensuring the long-term growth potential of Malaysia’s SME ecosystem.
Malaysia reinforces its potential as a global business hub amidst volatile trade environments through policies targeting immediate financial aid and encouraging resource efficiency.
Now is the time for SMEs to act. Tap into the opportunities offered by the Government-backed Business Financing Guarantee Scheme and secure your enterprise’s future in an increasingly unpredictable global economy.
Stay tuned for Part 2 of this article, where we will explore advanced strategies and additional resources available to SMEs, ensuring they remain resilient and competitive in a dynamic economic landscape.
FAQs for the BFGS
- The Business Financing Guarantee Scheme is a government-backed initiative designed to provide financial assistance to small and medium enterprises (SMEs). It ensures accessibility to loans by sharing the risk with financial institutions, enabling businesses to secure the funding they need for operations, growth, or unexpected challenges.
- The scheme is open to SMEs that meet specific criteria, such as being registered within the country and operating in eligible industries. Applicants must demonstrate financial viability and a genuine need for funding to qualify.
- The scheme typically covers term loans, revolving credit facilities, and trade-related loans. These financing options support various business needs, including working capital, asset acquisition, and operational improvements.
- SMEs can apply by approaching participating financial institutions partnered with the scheme. Applications usually require submission of business documents, financial statements, and a detailed plan for utilising the funds.
About the Author
