Financing Smes In The Global Market
Let us think and analyse on how are Small and Medium Enterprises (SMEs) are coping to adapt and sustain in this new world
. Is it that they have no cash or they lack basic business ideas to successfully flourish in their business? This article tries to outline challenges facing SMEs in obtaining sufficient finance in today's markets and how to overcome those challenges.
It has been established that small businesses face unique challenges, which limit their growth and severely reduce profitability and hence affect their sustainability. Some of the challenges they face are: cash flow management; business financing; inadequate managerial training and appropriate experience; lack of necessary education and skills; technological change; and limited market information and necessary data.
It is noted that in today's uncertain economy with ever rising interest rates , a number of small businesses are not able to obtain adequate finance that having problems staying alive. This situation cause the new businesses and most work-at-home people fail in earlier stage (say 6 years for new businesses and within six months for work-at-home people).
Cash is a necessary component in running any business regardless of its magnitude. Every business must have enough cash in order to operate effectively and be sustainable. However, experience shows that the business can be profitable and still be bankrupt. Unfortunately, a good number of small and medium businesses rely entirely on profits instead of cash. As business ethics simply show, profits are never spent in a business, only cash is spent.
It is suggested that to manage cash flow effectively small businesses have to make sure they get the money from customers sooner, pay bills at the last possible moment, manage accounts payable, accounts receivable and inventory more effectively.
In order that small businesses set up and expand their operations, develop new products, and invest in new staff or production facilities funding for these becomes really crucial. Business experience shows that many small businesses when they are successful and need new investment to expand or innovate further, they heavily fail, because they find it much harder to obtain adequate financing from banks, capital markets or other suppliers of credit.
There are three main obstacles that may prevent s from obtaining adequate financing which are: presence of marked informational asymmetries between small businesses and lenders, or outside investors; the intrinsic higher risk associated with small-scale activities; and the presence of sizeable transactions costs in handling finance.
Lack of collateral is the most widely cited obstacle encountered by small enterprises in accessing finance. In the case of debt financing, lenders typically request collateral in order to mitigate the risks associated with the 'moral hazard'. In some cases, the enterprise may be unable to provide sufficient collateral because it is too new and maybe it is not firmly enough established.
It is thus recommended that for the SMEs which have no funding, a small loaning system should be established. This would be introduced with affordable low interest's rates to ensure the sustainability of these businesses. Further, Governments may come in by engaging in supporting the small business sector, particularly where there is market failure or where incomplete markets inhibit the provision of adequate financing on terms suitable for the SME's stage of development.
by: Joyce Msiru
Aarkstore Enterprise -The Global Biodegradable Plastic Packaging Market 2010-2020 The impact of the global financial crunch on India's economy! Fulfillment Centers Can Reduce Shipping Costs Enjoy For The Economy Room And Board Together With Air Tickets For One Of The Enchanting Sydney Vaca Aarkstore Enterprise - The Global Biodegradable Plastic Packaging Market 2010-2020 Different Kinds Of Air Purifiers You Wish To Know Prior To Purchasing AIESEC LPU organizes Global Village Students Are Going To Organize A Global Students Union Is Global Warming Getting Warmer? Going Global with a Custom Website Design Company What Is Drop Shipping and How Does It Work? Your 5 Step Guide Save With Weekly Deals and Free Shipping Global Watch Market Report: Focus On Luxury Watches - Market Research Reports On Aarkstore Enterpris