Financing Small And Medium Sized Businesses

venture capital financing. These seed funds can provide this kind of capital, as can “angel” investors

These methodologies are important amongst entrepreneurs who are seeking financial funding for a second round to recover financially. Venture capital amongst small businesses refers to the private equity used to finance new or existing businesses perceived to be long term. These forms of funding are currently used to facilitate businesses financially challenged. The traditional financing sources are financing strategies that are primarily used by investors to restore their business financially (Reichert, 2007). The traditional forms of funding include grants to fund the small businesses.

Now that the small business idea has become more that just fine print, it is time to put together a loan package that explains the story of the company. There are important questions to answer, demonstrating the company’s ability to correctly make important financial decisions, and detail how the business will pay off the loan. This paper will include the requirements of a loan package, creditor requirements, a ratio analysis, loan justification, and how the company plans to use the proceeds.

cash from sales) and external sources of finance from outside the business (e.g. a bank loan)." There is a need of external financing for the expansion through acquisition. External financing is a good source of raising money besides internal funds. As per business finance, "external financing can take the shape of two different types of financing, debt or equity. Debt financing includes bank loans where a company gets financed by issuing debentures which they have to pay back after a certain period of time. It is called debt financing because the company is in debt to the bond holders and if they were to go bankrupt, the bond holders would have claim to any remaining assets. In this case these are secured business loans. Equity financing is when a company decides to give up ownership in the company to raise funds. This is usually done by selling company stock to investors. Sometimes this could include seeking out angel investors or venture capitalists. If you are expecting to get external financing through equity financing make sure that your business has a product or service that is unique, and that there is a high demand for your product or service. Most venture capital investors or even angel investors will not look at an offer unless they see a large growth potential." (2)

Many business need to raise capital in order for their business to function. Different sources of finance have different implications for a business, so the most appropriate method of finance needs to be chosen for the purpose that the business has in mind. The UK market is growing rapidly, and has more than doubled2 in size year on year from £267 million in 2012 to £666 million in 2013 to £1.74 billion in 2014. In the process, it has given individuals more control over their money as well as new outlets to invest or donate it. According to Manos Schizas, Senior Economic Analyst and Acting Head of SME

Task 2: Assessing the sources available to the businesses (a critical analysis of short term, midterm and long term financing)

There are several advantages to accepting funding from a relative. The first, and most obvious, is that by entering into a partnership to pay back this relative, there is no high rate interest to worry about, as there would be with a bank loan. Also, the relative only has to agree to the assistance, instead of applying for bank approval. There is also no risk of depreciation, as there is with the stock market. However, there is also a very large risk with this type of funding. When using a short or long term loan with a bank, once approval is granted, the funding is guaranteed. When borrowing from a relative, he/she can decide at any time to stop funding for no particular reason.

The limited funds forces SMEs to operate solely and discreetly which translates to the shortage of working capital, inadequate marketing as well as being stagnant at the growth stage. Given that SMEs operate in small scale, one of their biggest challenge is to command competitive procurement, distribution as well as the selling price. The working capital of these SMEs is restricted in the illiquid inventory and receivables due to the unorganized sectors which makes SMEs prone to any demand disruption in the supply chain which can affect their operations drastically. The financial manager has to ensure cash available to the company in order to cover its operating expenses and short-term debts. To obtain an effective working capital management, the manager must manage the cash flow to pay the employees and debts, know when to take on short-term loan to pay the suppliers or unexpected expenses. The manager can keep more current assets to reduce liquidity risk. However, this would reduce the company’s profitability as current assets have low returns. In contrast, using more current liabilities which cost less will result in higher

Firms raise this capital when they are short of other options. The firm has a basic model, but it lacks the capital that will take it to complete heights. This is especially so to a firm that has an interest to trade in the markets in the future. The firm approaches another reputable and stable company for help. The situation is advantageous where especially where the reputable firm is within the same field. The smaller firm approaches the potential financier with the idea stage and then if the company approves of it, the firm receives finances in the form of capital. The conditions that are most imperative in the raising of this capital are that the business model needs to be extremely elaborate (Brooke 2009). The financier should get the plan easily, and the amount of finances has to be large enough because many of them do not appreciate small investments. The investors should have full conviction of the plan for them to consider any channeling of finances.

The business I am going to be talking about will be a shop called news, food and wine. This shop can use a wide variety of different internal and external sources, this is why I’m going to be using this business. A shop will need business finance because they might want to expand the business, they can’t afford to pay workers or the bills or they have just started up.

I am grateful to Mr. R. C. Agarwal the mentor of the Seminar Paper for giving me the opportunity to write a Seminar Paper on the topic “Short-Term Financing & SMEs”. I thank him for his suggestions & guidance throughout the Seminar paper with full attention and dedication.

The study by Sapovadia (2007) explores that the typical micro finance clients are self employed, household-based entrepreneurs and low income persons that don‟t have access to formal financial institutions and also lack business skills. Micro entrepreneurs face many huddles in getting started. They sometimes lack the skills necessary to manage the financial aspect of their business line and in large number of cases they indulge in particular business by default. Various micro enterprise development programs have helped micro entrepreneurs in achieving great success and growth. These micro entrepreneur development programs have immensely helped micro entrepreneurs, who look for collateral security, or are in capable to find such collateral needed to secure alone or those who have low credit. They providing them with training support, help in

SBI and its subsidiary banks and other nationalized banks provide liberal term loans and working capital to small scale entrepreneurs and these loans are advanced for purchase of machine and material and to the technical entrepreneurs to encourage self employment. Specialized institute like, Central

Many SMEs in emerging markets often rely on informal sources of capital, such as borrowing from relatives, to meet finance needs. However, when a small or medium enterprise does access formal channels, it typically looks to a bank as its primary source of financial services. Banks have begun to turn their attention toward this untapped market and their service of SMEs is a major factor in increasing SME access to finance. Although, numerous issues surface when it comes to SME lending, banks, by employing a range of measures, such as risk adjusted pricing, credit scoring models, and SME-tailored non-lending products are developing ways to mitigate risks, lower costs, and increase the overall benefit accrued from SME

SMEs (Small and Medium enterprises) are one of the key drivers of India’s economic growth. Over the years a large number of small and medium size companies have grown in the market. Small and Medium Enterprises (SMEs) have been contributing so much towards the GDP of India. With their emergence and huge potential, the government of India launched regulated trading platforms for the SMEs, which allows them to get listed without bringing an IPO. The stock exchanges for these enterprises were introduced so that these firms can do better in financing activities for themselves. Of course, there is an option of adding debt, which also helps improve the overall return on equity, but the cost of raising debt for SMEs is relatively higher. High interest expense does not look very good on the profit and loss statement of a growing company. Thus, in order to fund the next stage of growth without excessive interest cost burden, companies look to access equity funds via capital markets. This is where listing on an exchange comes into the picture. The research would include the implications of the introduction of the BSE and NSE SME stock exchanges how well they are performing. Also, what is the response from the SME sector.