Recently, terms such as entrepreneurship, startups, and new companies have flooded the markets with their original and innovative initiatives to gain a foothold in their sector. But what happens with SMEs? Perhaps they are the forgotten ones, but not least important.
If figures guide us, 80% and 90% of startups stay on the road without success. However, an SME is a company that already complies with specific legal requirements. So, how do you get financing?
5 Main Sources of Financing for SMEs
Within SMEs, we must know how to differentiate between:
- Microenterprise: would be fewer than ten employees with less than $2 million turnover.
- Small business: It would have less than 50 employees and a turnover of less than $10 million.
- Medium Company: This would reach up to 250 employees with a turnover of up to $50 million.
Any of the three have financing needs throughout their activity, so they must know where to go.
Bank financing
Perhaps this is the first option that comes to mind for any manager of an SME. There are beneficial and necessary banking products in the daily operation of a company, such as the discount line of credit account. The same applies to factoring or leasing if the organization needs a transport element or machinery to increase its production volume.
Due to the economic conditions of recent times in which financial institutions were closed to credit, new alternatives emerged that hit strongly in financial markets, reaching the position of being the first option in many cases.
Private equity
These institutions manage the monetary funds intending to invest them in private companies with high growth potential in exchange for a large percentage of shares in their capital stock. Sometimes, private equity is confused with Venture Capital Companies. However, although their operation and criteria coincide substantially, private equity funds tend to invest higher amounts without discarding any sector. Venture Capital Companies are more focused on SMEs with a high technological component.
Business angels
Business angels are another great alternative since they contribute liquidity to the SMEs’ projects and, in general, offer their experience, knowledge, and training, making it available to their target companies.
It implies a high degree of commitment to the initiatives they are involved in, so SMEs can obtain double benefits if Business Angels come as an election.
Venture capital
As mentioned, Venture Capital Companies are fund management entities that bet on high-risk projects but have high profitability expectations. They usually have minimum participation in the company’s capital that it will withdraw later once it achieves its objective. Venture Capital can be an excellent alternative for all those SMEs that are expanding or entering new markets.
Government Funds
Our country also has the option to go to public institutions in search of support for new projects. It is the case of ENISA, a public company under the Ministry of Industry, Energy, and Tourism.
Since 1982, he actively participated through several financing lines in economically viable and innovative business projects. They offer several financing alternatives, but two focus directly on SMEs, one for recently established and one for already consolidated SMEs seeking expansion and growth.
All in All
One of the most significant variables here is motivation. A startup rejection may hurt, but it does not mean that it’s the end of your journey. It’s best to stay motivated during hard times; it is challenging but essential. Rejection is part of the process. Another way you can take rejection is by adapting and responding. Also, rejection does not always mean that your idea is terrible. It just means that it can be improved and presented better. A stream of critical feedback lets you perform better with work and your skills.
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