SME Financing the Smart Way

Why Business Need Finance

 

Running a business could be incredibly costly. You need to pay expenses like purchasing machinery, renting warehouses, paying for marketing expenses and so on. All businesses around the world have to pay for the resources that they consume for their business. After the business has setup completely the cash will flow to the business from sales that could be used to finance these resources. On the other hand, cash will be needed before the company starts trading and this cash will have to be invested by the owners or borrowed from outside parties like banks. Even when the business is running it might need some extra cash to finance the new projects for further growth.

The Business needs financing for short-term and longer-term projects. Management will decide the most appropriate and low cost financing strategy, ensuring at the same time that they’re not sacrificing their longer term goals at the cost of short term achievements. Below is the analysis of types of short as well as long-term financing arrangements that the SME could seek.

 

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Setting Financial Strategy

 

These are general examples, but you can see the point. Financial strategies are essential in business because they rely on a sound understanding of where the company is at present along with an ambition of where the company can be in a few years’ time. The strategy will help you get there. How can you go about getting a financial strategy? You can work it out for yourself, using the internet as a guide to small business finance and by using your own common sense. Or you can hire in a professional to do it for you. In either case remember that it is your money, your business, and your life. If you don’t understand the ins and outs of your financial strategy then do not implement it. You are in control. So, what are you waiting for?

 

Small Business Financing Opportunities

 

There are two types of small business finance available to a SME. One is the financing through debt. This is the traditional way to raise finance for your business. You get the cash and utilize on your own. The disadvantage is that interest costs discourage the profits of the company. The interest payments cannot be deferred if the company is to incur loss for any period. If you get the money from equity, you cannot expend it on your own because the shareholders participate in the decision making, you cannot implement your full discretion. So based on the complexities involved in these two types of financing, SMEs need to look for some other sources that can bring cash easily.

 

Borrowing from friends and family is also a good option for small business owner. This could be quicker way to get the desired amount without entangling into too many formalities, but at the same it may disturb your good relationship with your family or friend in case you fail to repay money to them. Another option is to factoring of accounts receivable. It is one of the easiest ways to meet short term obligations. You can get good deal of amount of money against your receivable if the quality of your business customers is good.

 

Whichever option you seek it good idea to evaluate the financing opportunities and resources in terms of balance between earnings, savings, relationships, time and most important your authority.

photo credit: Analyzing Financial Data via photopin (license)

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