The Delima Essay

Executive Summary

Delima Enterprise Sdn Bhd faced a problem when they decided to take up loan from the commercial bank and realized that their company financial statement was not audited for quite a long time. However the real problem detected here is that the transformation of the business type of Delima which is from an enterprise to a company. The reason here is that I do not think that Encik Zayed who is head of Delima had done the necessary preparation to become a company especially in term of capital. Operating a company definitely has higher requirements and obligations if compare to managing a sole-proprietorship business. The assumption here is that Encik Zayed had not added up any extra capital when forming the company resulting to a cashflow problem. As they turn out to a company they are most probably eligible to handle a more advance project and of course it required more capital to cover the project cost. The main issue is here why they decided to incorporate into company when they yet to have the necessary capital to do so until they decided to take up loan from the commercial bank. Moving on to the next main issue is that the loan itself. First of all we should think on why they want to borrow up to a million ringgit. It will be tough in term of paying back the loan later and whether it is really necessary to borrow more than the secured project cost.

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Moreover the borrowing was applied to a commercial bank that generally imposed high interest rate and this could be a huge risk to Delima. Delima Enterprise Sdn Bhd is to be said under the Small Medium Enterprise (SME) company category. As a SME company, there are actually many loan schemes being offered by SME bank that is mainly to help the company for growth rather than being a financial loan product like the commercial bank. In other word, they usually offer lower interest rate and this should be a good option for Encik Zayed to consider. Futhermore, the requirement to borrow for SME’s loan is usually lower than commercial bank also less risk. With just a satisfactory and an adequate paperwork submitted to the SME bank, the loan should be approved. As conclusion borrowing from SME bank would be a good solution to Delima instead of inviting new shareholder to contribute capital to the business. This is because I believe Encik Zayed may not wanted to share his controlling power to a new shareholder. In addition this loan is less risk with lower interest rate and easier to be approved by the SME bank.

Problem Statement

According to the case, Encik Zayed decided to incorporate his sole proprietorship business. The main issue is why he decided to go for the incorporation when he actually do not have the required resources to become incorporated as a company. The assumption here is that he does not inject any additional capital to become a company. So to say here is that he runs the company by relying on previous capital of his old proprietorship business which is not enough to cover the company’s operation and in the end he decided to take up loan more than he needed. Another aspect to look into is whether Encik Zayed really prepared to become incorporated as a company? To become one is not really the same as running a sole proprietorship business. Operating a company basically has higher requirement and responsibilities to be fulfilled than sole-proprietorship business. For example in this case Encik Zayed had not performed any statutory audit, financial audit properly and not to say that Encik Zayed was not familiar with accounting standard including his role as a company director. So it is really a wise move for Encik Zayed to incorporate his enterprise business.

Next major issue to be looked into is that the company has a financial problem. In other word, Delima Enterprise Sdn Bhd has no money. That’s why they need the loan to support the project they wanted to secure. Eventhough, their unaudited financial statement seems to show a good profit but still it is unreliable report as it is not yet an audited figure. According to the case, Delima need to borrow more than the secured project cost. The presumption here is that they need to borrow not just to cover the cost of the project but they also want to replenish their financial resources from the extra money intend to borrow. I would say that, Delima really need a financial support because generally they had not inject any fund or new capital since they formed the company. Like i said before, operating a company will need more funding because they will need to handle bigger project than they had run when they are just an enterprise. So the real issue here is that, they don’t have the required capital to operate the company. Alternative Solution

To answer the issues, I think Delima should consider first their preparation before going to incorporate their business. The most crucial thing is the preparation to become one. As a leader, Encik Zayed cannot just ignore all the obligations and requirements when operating a company. For the moment Delima can consider to invite a new shareholder to join the company who can provide Delima an additional capital. This approach is less risky than obtaining loan from a commercial bank that will eventually charged the company with high interest rate. However, I do believe Encik Zayed would not agree with this solution because inviting a new shareholder would mean that he will have to share his authority with an outsider as a company decision maker. Another solution to consider is that, the loan itself.

Why would a small company or we could say Delima is under the category of Small Medium Enterprise (SME) company and has just started to expand wanted to take a huge risk by obtaining loan from a commercial bank? Also not to mention the sum of amount they want to borrow is questionable, RM1 million. Obviously it is a huge risk to bear especially borrowing from commercial bank that will charged most business high interest rate. An alternative solution to this is to borrow from SME’s bank that offer loan with less requirement to fulfil plus it is less riskier compare to commercial bank. Well there are many loan scheme being offered to SME’s company with most of the products are intended to provide aid for growth of the small company rather than just another financial products. Generally, they provide less expensive financial product in term of lower interest rate.


Between these two alternatives which are inviting shareholders and obtaining loan from SME’s bank, I would say the second will benefit more to Delima Enterprise Sdn Bhd. I believe that Encik Zayed is not willing to let anyone else have controlling interest in the company. So considering to have the loan from SME is better in term of financial risk and maintaining controlling power. Moreover the requirement to obtain loan from SME bank is relatively lower than the commercial bank such as Maybank and CIMB bank. So it is easier for Delima to get the loan and it will be easy for Delima to pay back the loan. Implementation

As to wrap up the whole thing, what Encik Zayed should do in the short run is to pull out his loan application from the commercial bank and prepare the paper work to get the loan from SME bank. In short term, this option will help the company to continue with their operation and expand their business with the securing project in their hand.

However in the long run, Encik Zayed need to consider to manage his company more effectively and efficiently. As a leader of Delima, he need to increase his knowledge as a company’s director, improve his understanding in the accounting standard and perform all the necessary work done as required by the law and regulation. This will ensure his company will continue to survive and even expand globally with the value of ethical and professionalism. In addition, this will also help the company to be competent in the business industry.