SME Finance with Ease (continued)

More about SME Finance

Thus the second approach has been to utilize the viability approach which pays particular attention to the business itself by providing better business development assistance with business plans with a focus on reducing risks and increasing returns.

The common goal of the viability approach is the appropriate finance that is tailored to the SME’s cash flows. This tends to allow for the firm’s diversification and growth potential. This sector is now known as the “growth finance sector”.

Due to the challenges of available market viability information especially in developing economies, it has become highly necessary to utilize business development consultants with access to information and more modern communications technology to provide the finance -packaging necessary for the viability approach.

Some investors have promoted this approach for achieving wide social benefits whilst others are focused on it more for the better financial economic returns it can provide.

Aspen Network for Development Entrepreneurs (ANDE) is an organization that has been created to help bring the growth finance investors together into an association serving the sector as venture capital or microfinance associations do. ANDE has determined their target audience to be the Small Growing Businesses.

A group of financial service providers and investors have formed the Finance Alliance for Sustainable Trade (FAST). It is an association of financial services providers committed to improving access to finance for Small and Medium Enterprises that are compliant and have sustainability in the areas of organics, fair trade, forest stewardship council etc. One of FASTs objectives is to help link sustainable trading relationships with sustainable production practices for improved access to finance for SMEs resulting from the reduced risk profile of SMEs in traditionally high risk sectors.

The management of business lending

Banks are moving towards a more effective management of lending to SMEs as they realize the SMEs can contribute significantly to the overall growth and profitability of banks. This included research into the analysis into the methods used to monitor business loans, manage business financing risks and price their products including their improvement. A key scrutiny has been the kinds of business financial information that has been used in making lending decisions and their actual reliability.

Banks have traditionally utilized a mixture of metrics such as interviews and visits, personal knowledge and expertise of managers in assessing and monitoring loans. It has since been established that when assessing comparatively small and straightforward business credit applications, relying on standardized credit applications, standardized credit scoring (quantifying the characteristics, assets and cash flows of businesses/owners) including using centralized and rationalized business banking operations generally, the bank’s processing costs can be significantly reduced. Further, that standardized computer-based assessment may also be more accurate and fairer than reliance on the personal judgments of local bank managers. As a result, it is expected that banks may offer more loans, faster and in larger amounts while reducing previously high security requirements.

The caveat however is that business lending is largely more diverse, riskier and more complex than its counterpart residential mortgage and personal lending. This tends to limit the heavy weighting, usability and desirability of computerized credit scoring and assessment

SME Finance Action plan

1.      It is critical that an SME work with an adept business development consultant as described above that has access to small business enterprise finance investors, private equity and financiers.

2.      A business plan is critical to be established for SME finance, followed and updated as often as necessary, with data assessment and record keeping of progress and what targets are achieved in relation to projections with the market

3.      Up to date accounting records must be kept utilizing up to date accounting software for providing financial statements and financial reports. Pay bills on time and establish good credit always.

4.      Principals and stakeholders should be open to and or determine whether finance, private equity, venture capital, buyout options are preferred for capital injection.

5.      Join SME Finance and development organizations, attend seminars and forums. Seek partners for collateral and or equity participation for stock or other options

6.      Know, study and be up to date with your market and competition

For a quick start to our adept business development consultant evaluation of your SME financing options contact our adept team today.

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