Sources Of Finance For SMEs

Sources Of Finance For SMEs

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In reality, there are quite a few potential sources of finance for SMEs. However, many of them have practical problems that may limit their usefulness. Some key sources and their limitations are briefly described below. Crowdfunding and supply chain financing are then considered in more detail.

OWNER, FAMILY, AND FRIENDS

This is potentially a very good source of finance because these investors may be willing to accept a lower return than many other investors as their motivation to invest is not purely financial. The key limitation is that, for most of us, the finance that we can raise personally, and from friends and family, is somewhat limited.

THE BUSINESS ANGEL

A business angel is a wealthy individual willing to take the risk of investing in SMEs. One limitation is that these individuals are not common and are very often quite particular about what they are prepared to invest in. Once a business angel is interested, they can become very useful to the SME, as they will often have great business acumen themselves and are likely to have many useful contacts.

TRADE CREDIT

SMEs, like any company, can take credit from their suppliers. However, this is only short-term and, indeed, if their suppliers are larger companies who have identified them as a potentially risky SME the ability to stretch the credit period may be limited.

FACTORING AND INVOICE DISCOUNTING