SME’s are flourishing and growing rapidly all over the world. Since the establishment of the SME’s, some of the basic and important requirements should be met. The requirements include an SME’s infrastructure requirements and developed IT infrastructure together with funding sources. Funding sources offer to strengthen pillars to the SME’s. SMEs or small and medium enterprises is a term that categorizes organizations and businesses that are small or medium in size. Inadequate and untimely funds can affect the growth of the SME’s in an adverse manner that can impact the growth of a country’s economy. Insufficient sources of funding act as a barrier in the sustainability of the SME’s.
The economic development of a country is largely dependent on the way the micro, small, and medium enterprises perform and function. They provide entrepreneurial spirit, innovation, and huge talent that are needed for the development of a nation. This sector provides employment to huge masses and contributes a lot in industrial development. They produce high-quality products for national as well as international markets. The presence of these enterprises is acknowledged greatly. However, this sector has to face the problem of limited sources. There are several cases where these organizations are facing the issues of funding. This is where many organizations have come up to offer Accounts Receivable financing to the SME’s.
Funding sources for the SME’s
Many commercial banks and financial institutions lend working capital support to the SME’s. Friends and family members also provide financial support to these enterprises. This is a great financing source. These investors accept lower returns compared to the other investors. The only drawback of this financing method is limited finance. SMEs can avail credit from their suppliers. It is a short-term credit, however, if the suppliers are very big organizations then they may extend the credit period. An angel investor is another kind of investor for the SMEs. These investors can turn out to be quite helpful because they have many contacts and great business plans.
Invoice discounting and factoring may help an organization to raise finance. It is for a short-term and more expensive than an overdraft. With the growth of SMEs, the receivables along with the borrowing amount are also growing rapidly. Leasing assets is another option and it is better than buying the assets. Leasing is possible mainly on the tangible assets. Supply chain financing is relatively new and it is different from the traditional methods of working capital financing. It offers settlement discounts because it is collaboration between buyers as well as sellers in a supply chain.
SME targeted banks
Special financial schemes have been formulated by the banks that mainly target the SMEs. They may be risky but offer great returns. This kind of Accounts Receivable Financing offers low-interest rates than the commercial banks. This is a great advantage for the SMEs. They provide timely funds because if the availability of funds is delayed it may hamper the working of these enterprises. This is a great option as the SMEs will not be losing business.