What is SME Finance and How It Can Help Your Business?
Before you start considering all the different sources for financing a small to medium-sized enterprise or SME, we need to consider what a SME is, why their businesses are important, and why many have a hard time find financing difficult.
What Is An SME?
It is generally accepted by many financial workers that an SME is a business that is larger than a business that only provides self-employment option to the owner. At the same time, a SME is normally not on any stock exchanges, if it is only it is one of the smaller stocks and is normally owned and run by a few shareholders. This means that the term SME is able to cover a huge amount of businesses in the world.
Why Do SME Find Raising Finance Difficult?
One of the major complaints from SME owners is that the lack of finances makes it hard to grow and find profitable opportunities. The gap between SME finance options and what is available to the company is often called the funding gap.
The first thing that you have to learn about SME finance is that there are many times limited amounts of funds that are provided from investors. Many of the potential investors for a SME have already had a large portfolio, and paid taxes, so there is little money that is able for them to invested in other places.
At the same time, in a competitive market, the number of investors’ funds becomes even more limited. Larger companies and governments take up much of the funds that are available, leaving very little for SME finance funds left, if at all.
Where to Look for SME Finance for Your Business?
Sometimes it can seem like there are no options for SME finance funds available. However, there are a number of sources that can be used for SME finance funding .
At the same time, many of these options have problems that can cause them to be useless. Here are some of the main sources of SME finance funds and how they work.
The SME’s Owner, Friends and Family
This can be one of the best sources of SME finance as these investors are sometimes willing to have a lower return rate, than other investors. This is because their motivations of investing are not just financial. The major limitation of this funding is the amount of these finances can be limited for most people.
SME Business Angels
SME business angels are wealthy persons who are willing to take the huge risk of financing a SME. One of the limitations is that business angels are rare, and many times very particular in what they invest in. If you are lucky and have a business angel interested in your business, they can be very useful for SME finance. Along with the funding they provide they also have many other contacts that could be useful.
Crowdfunding has taken off in the last few years, and more SME businesses are using this method to get funding. Crowdfunding is based on the everyday person investing money into ideas and businesses
that they want to become a reality. Most companies will have thousands of backers to achieve the goal. The problem with using crowdfunding for SME finance is that you need to reach your goal, or you do not receive any money. You also have to stand out from the other thousands of campaigns that are happening at the same time.