Financing Small and Medium Enterprises
Name: Neal Date: 11 Oct, 2010
Financing Small and Medium Enterprises
Introduction:
Cash is like the blood in human body for all companies. So, the problem of financing is one of the most important issues in company operations. Appropriate and healthy sources of capital is the primary issue for an enterprise, especially for the SMEs. As policy, the reasons for their ideas, and SMEs’ own flaw, so that the financing channels for SMEs is relatively narrow, a shortage of funds has become a major bottleneck for the development of SMEs. This paper is trying to explore into the financing problems that SMEs face and provide some feasible sources of finance which can ease the cash flow pressures for SMEs.
SME’s can be defined as having three main characteristics:
• Companies are not quoted on a stock exchange – they are “unquoted”
• Ownership of the business is typically restricted to a few individuals. Often this is a family connection between the shareholders
• Many SME’s are the means by which individuals (or small groups) effectively achieve self-employment
When an SME is not growing significantly, financing may not be a major problem. However, the financing problem becomes very important when a company is growing rapidly, for example when contemplating investment in capital equipment or an acquisition.
Few growing companies are able to finance their expansion plans from cash flow alone. They will therefore need to consider raising finance from other external sources. In addition, managers who are looking to buy-in to a business or buy-out a business from its owners, may not have the resources to acquire the company. They will need to raise finance to achieve their objectives.
Sources of finance for SME’s
There are a number of potential sources of finance to meet the needs of small and growing businesses:
• Existing shareholders and directors funds (“owner financing”)
• Overdraft financing
•
Financing Small and Medium Enterprises
Introduction:
Cash is like the blood in human body for all companies. So, the problem of financing is one of the most important issues in company operations. Appropriate and healthy sources of capital is the primary issue for an enterprise, especially for the SMEs. As policy, the reasons for their ideas, and SMEs’ own flaw, so that the financing channels for SMEs is relatively narrow, a shortage of funds has become a major bottleneck for the development of SMEs. This paper is trying to explore into the financing problems that SMEs face and provide some feasible sources of finance which can ease the cash flow pressures for SMEs.
SME’s can be defined as having three main characteristics:
• Companies are not quoted on a stock exchange – they are “unquoted”
• Ownership of the business is typically restricted to a few individuals. Often this is a family connection between the shareholders
• Many SME’s are the means by which individuals (or small groups) effectively achieve self-employment
When an SME is not growing significantly, financing may not be a major problem. However, the financing problem becomes very important when a company is growing rapidly, for example when contemplating investment in capital equipment or an acquisition.
Few growing companies are able to finance their expansion plans from cash flow alone. They will therefore need to consider raising finance from other external sources. In addition, managers who are looking to buy-in to a business or buy-out a business from its owners, may not have the resources to acquire the company. They will need to raise finance to achieve their objectives.
Sources of finance for SME’s
There are a number of potential sources of finance to meet the needs of small and growing businesses:
• Existing shareholders and directors funds (“owner financing”)
• Overdraft financing
•