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smallAll small and medium enterprises (SMEs) are considered the foundation of all economies. The size of SMEs and the number of individuals engaged in this sector indicate their significant importance in the growth of the economy. This importance is also recognized by policy makers, who are working to create a business-friendly environment for SMEs to boost their financial development and growth.
Although the importance and contribution of SMEs to the economy is widely recognized, there are many SMEs and start-ups facing myriad challenges. One of the most significant obstacles is the lack of financial resources to remain competitive and grow your business.
If the SME sector does not have the cash it needs to operate optimally, it will be unable to fund investments and day-to-day operations. As a result, the expansion of SMEs is severely restricted.
technological progressIt created the potential for growth in a new industry, financial technology. Taking advantage of technological advances, the industry provides much-needed services. New alternative financial channels are emerging with the aim of serving underserved segments of the economy.
The small business sector understands the importance of alternative finance. Digitization of operations could enable fintech companies to offer easily accessible low-cost loans, significantly lower transaction costs, faster application processes, and more. The biggest limitation to small business expansion and scaling is the fact that most small businesses do not have access to capital. Commercial banks often view SMEs as a high default risk due to poor collateral, small asset size and limited historical track record. This unfortunate factor has hindered the growth of SMEs globally, especially in developing markets.
Implementation of measures
To enhance institutional credit flows to SMEs, various national parliaments have implemented various measures such as interest rate subsidies, unsecured loans, partial credit guarantees, credit insurance and matching grants. . Many countries have also established separate stock markets for SMEs, further simplifying access to much-needed capital market resources. However, institutional credit channels are still inefficient, preventing many SMEs from expanding their operations.
Many measures taken by governments during the pandemic, such as tax deferrals and national bonds, have helped small businesses survive (some have remained trading at low levels, some have been laid off). ), the cash flow problem persists as companies strive to get back to “normal”. trading volume.
Alternative funding is accessible through the fintech industry and can provide a lifeline to companies in dire need. Businesses need to educate themselves about the possibilities available.
Alternative finance is a developing channel in financial intermediation and is technology driven. Crowdfunding and peer-to-peer (P2P) lending are two of her examples. Crowdfunding is a digital platform with her three moving parts: SME businesses seeking funding, donors willing to back projects, and regulatory bodies facilitating interaction between donors and callers.
Create financing options
Coordinating organizations provide participants with information on various programs and funding possibilities for product/service development. Organizations and owners can lend and borrow from each other via the P2P platform. Thanks to their foothold in IT design, P2P platforms often offer lower interest rates and enhanced lending procedures for both lenders and borrowers.
In addition, automated onboarding, identity verification, and instant bank account opening have allowed such fintech companies to disburse cash in government programs faster than banks. But these initiatives are coming to an end and small businesses will soon need to seek capital from non-government sources.
These options have helped thousands of businesses not only survive during the pandemic, but also access the funds needed to produce goods, hire new talent, and enter new markets. The goal is to enable owners to embrace the new era of corporate finance.
Small businesses typically benefit when they seek funding from unconventional sources. These alternatives help owners work with strong investment partners who may expose their business to qualified leads, analysts, media, and other partnerships.
Benefits of partnering with an atypical lender include:
market credibility
Businesses may lend some of the goodwill of their strategic partners, and working with experienced investors adds weight to their brands.
infrastructure support
Larger partners are likely to have marketing, IT, finance, and HR groups, all of which startups can use at discounted rates.
General business advice
As part of this transaction, a strategic partner may join your board of directors. They have a wealth of business expertise, so understand that their opinions and perspectives are helpful.
Market access and longer payment terms
Businesses have access to the world’s most cost-effective marketplace of factoring solution providers. Factoring also allows for longer payment terms, providing companies with better opportunities to compete effectively in the market.
In a nutshell, factoring is a form of financing that is primarily based on the creditworthiness of the company’s buyer rather than the financial status of the company’s own business. Also, since it is not a loan, it will not show up as a liability on your balance sheet. Businesses can also closely monitor the creditworthiness of their customers and cover the risk of underpayments if these customers become insolvent. Finally, businesses can offer longer payment terms, thus attracting more buyers.
When things get tough, it’s important not only to put money in, but to keep it. Small businesses should consider conserving cash flow. P2P lending and crowdsourcing help businesses with short-term loans.
Various financing options for SMEs, while maintaining financial sustainability and investor protection, as well as tax incentives to stimulate investment in SMEs, to promote alternative sources of financing for SMEs. Regulations are required to support the mechanism.
There has been ongoing debate about the emergence of alternative finance in recent years, but knowledge among business owners remains low. This will have to change after the epidemic, not only for these businesses, but also for our economy.
Peter Maerewort is Global CFO and CEO Asia, Tradewind Finance
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