Is SME Financing Right for Your Business?

How are small and medium-sized enterprise loans important for your business

The majority of all businesses start out as small businesses. Whether talking about Amazon being started in a garage or Dell computers being run out of a University of Texas dorm room, there are many examples of huge, successful businesses being started in the humblest of situations.

Although the details may vary, all successful businesses follow the same general path. They are begun with an innovative idea, the company scrabbles and fights to enter the marketplace and, through hard work and dedication, they become the leaders of their industry. This accounts for less than one percent of small businesses.

Amazingly, 80 percent of all small businesses fail within the first 18 months. Although there are many reasons why small businesses fail in the first year and a half, lack of money to achieve their plans accounts for a sizeable proportion of the failures.

What is SME finance?

The easiest way to fund a new business is by using old money. Family inheritances, current wealth and already having a successful track record are advantages that can take a business far, but for most of us, they are unrealistic. Many small businesses are started by people who have great ideas but limited finances.

Finding the financing available to fund your business is the key to being successful. SME (small and medium-sized enterprise) financing is the linchpin that makes a small business successful. SME financing incorporates many aspects of financial management. Everything from raising capital to asset based financing falls under the heading of SME finance.

How does SME finance affect your business?

SME financing is a major part of the business financial market. Banks and private financial institutions use SME financing to create positive cash flow streams to increase their business and, even in difficult financial times, are willing to extend credit to help fledgling businesses get started. If a business can show a positive cash flow, they can usually get financial assistance to expand, explore new products or ideas and to ease their day-to-day costs.

SME finance even covers aspects of business such as the time needed to pay for raw materials. Net 30 accounts – where you have 30 days to pay for material after receiving it – are fundamentals building blocks of successful businesses. If you are forced to pay for all your raw material up front (Net 0), you must fund your business completely out of pocket. By using Net 30 accounts, you have time to turn the raw material into finished product and sell it before it must be paid for.

Using Net 30 accounts give small businesses an immediate advantage over their competitors with a revolving line of credit and a long-term advantage by building authenticatable business credit over time. This is just one example of SME financing at work, other examples include:

  • Collateral based lending. The traditional bank loan, collateral based lending allows you to borrow money based on personal or business assets.
  • Information based lending. Based on your businesses credit score and financial statements, information based lending is also done by banks and traditional financial institutions.
  • Viability based lending. Raising money based on the quality of your ideas is the realm of the venture capitalists. Some ideas are good enough that a business with a record of successfully marketing their concepts can borrow money based on their idea.

These concepts fall under the heading of SME finance and are all viable alternatives to funding your small business. Getting an SME loan (of whatever type) has never been easier. Financial markets have expanded globally, and it is possible – and sometimes easier – to borrow money from overseas banks than it is from ones in the United States.


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