Financing for SMES: Options for small and medium enterprises

by | Dec 29, 2021 | 0 comments

Financing options for SMEs

If your business doesn’t already have enough cash flow to cover its expenses for at least six months, then sooner rather than later you’ll likely need some form of outside funding. Even for big companies, some large-cap firms regularly need outside funding just to stay afloat in the short term. As a result, small and medium business owners need to find the best way for their company to get funded. There are many options to consider when it comes to financing for SMEs. The three main options are self-funding, bank lending, and crowdfunding using equity.

Self-funding

Self-funding is a way for SMEs to raise funds for business without the need for traditional banking. It is a viable option since it required only the owner to take the responsibility required for the endeavour. Formalized self-funding can come from using debt and equity sources, such as bank debt, angel investors, and venture capitalists.

There are risks for this method, such as risk to the business or personal bankruptcy, depending on how much debt a company has. The owner, therefore, must be a capable businessperson and a strong leader to run a successful company built on its own capital.

Bank lending

Bank lending can provide the additional capital an individual or company needs for an important project. What does bank lending mean? This can mean borrowing money from a bank or referring to an investment the bank has made. Banks are traditional lenders willing to loan funds to businesses. The borrower must pledge collateral that the bank will sell if the borrower doesn’t pay back the loan. Bank lending often needs a high credit score. Interest rates are typically determined by the size, term, and repayment options for the loan.

Crowdfunding

Crowdfunding was first introduced in 2008 with Kickstarter. It is a form of business financing in which individuals or entities donate any amount of money to a certain cause, project, or business. Subjects of crowdfunding can vary from funding new projects, business startups, inventions, to personal causes like disaster relief. Crowdfunding’s success depends on social media, where people can promote their projects to interested parties. They can also donate through these social media sites or by becoming members of certain groups that support the cause.

Conclusion

It can be difficult for new businesses to get the funds needed to get their businesses off the ground since there is a lack of collateral in the small business lending marketplace. Traditional lenders tend to be risk-averse, preferring to make bigger loans that have more collateral. Apart from the financing sources mentioned above, FinTech solutions like SAPI come into place as the fourth option of financing for SMEs to get more funding fast through platforms companies such as UberEats, Treatwell, or Sumup. If your business is operating on one of these platforms, SAPI can help you get a loan fast through our end-to-end lending program. You can get the fund you need to cover short-term expenses and keep your business afloat.

Contact us today for a demo session and find out how your business can benefit from an embedded financing solution like SAPI.

About the Author

Anh Nguyen

A social responsibility enthusiast who aims at building a sustainable relationship between businesses and customers. Content writer and Business Development Manager of SAPI.

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