Businesses need funds from time to time to facilitate various things from starting, paying operating expenses, and even for expansion. Small and medium-sized enterprises (SMEs) face some hurdles when it comes to getting finances due to a shortage of assets to offer as collateral against loans, among other reasons.
They have easy loan eligibility and process funds faster, enabling companies to take advantage of opportunities, and many other benefits.
Below are some methods which businesses can use to raise funds for their operations and expansion:
Trade Credit
Small and medium companies can get finance in the form of trade credit for their suppliers. This funding comes as inputs such as raw materials or goods for resale enabling the business to carry on with its operations. It may even help in expanding, say by opening new shops or branches.
One challenge of trade credit is that it is a relatively short term form of finance since the credit period is typically between 30 and 90 days. The vendors may have issues stretching the credit period if they deem the business as a potentially risky enterprise. All the same, it can help a business to keep operating as it looks for other finances.
Loans
Despite the coming of new ways of financing business thanks to technological advancement, the traditional funding methods are still widely used. Loans from banks and other lenders such as credit unions, credit card companies, and government bodies remain a critical source of funds for SMEs.
However, most of these loans require the business to have been operational for some time, have good revenue, and a good credit score. In case a firm does not meet these criteria and others the lender may have specified, they may not get the loans but can get other credit products, which may be more costly.
Venture Capitalists
Venture capitalists are private investors who inject funds into businesses with the potential of growth in exchange for a stake in those businesses. These businesses may be startups or existing businesses that wish to expand but have cash flow challenges and have limited access to financing options.
Given that they want good returns for their investment, venture capitalists demand to have more say in the running of the business. They could even take an active role in the management to ensure the profitability and stability of the enterprise.
