Smart Financing in SMEs World

Smart financing is a great alternative for everyone who wishes to have his own business with low entry costs and great profit potential. The concept of smart financing implies that you do not have to finance everything from your own money — you could use third-party money as well to grow faster, obtain more employees, or have a better office. When you are a startup, it is difficult to gain enough momentum to become an established company and compete with big companies. This can put great financial pressure on your business. It is why a lot of people in the smaller business world are looking for smart financing options.

To compete effectively, businesses must have access to appropriate forms of finance for SMEs. In addition to traditional bank loans and equity offerings, companies can also turn to alternative finance providers offering various forms of smart financing. These providers include peer-to-peer lenders, crowdfunding platforms, and corporate finance advisors, as well as traditional banks offering new types of loans. Here are the most important types of loans that are offered:

• Term loans: This type of loan involves borrowing a sum of money upfront and paying it back in fixed installments over a pre-agreed period of time.
• Invoice financing: This loan type works by allowing businesses to sell their accounts receivable (invoices) to a bank or lending institution at a discount to raise working capital. Banks or lending institutions typically purchase invoices for 80–85% of their value and then pay the remaining 20% once the client has paid.
• Trade finance: This type of loan includes all financing options that help facilitate international trade, such as letters of credit, export packing credit, import packing credit, and bill discounting.

Smart financing is always based on the needs of the business. It is not a short-term solution to meet a financial need but rather a long-term decision that provides a business with the necessary capital to reach its goals. The purpose of a loan decides the type of loan that can be offered. For example, if you want to extend your company’s working capital, you should use a credit line or overdraft facility instead of a business loan, which has long repayment terms. Smart financing is based on a relationship between the bank and its client and is tailored to fit the client’s specific needs.

Conclusion

Smart financing takes into consideration all the positive aspects such as financial growth, profitability, competitive advantage, and even future interests into the decision-making process of using the financing in question. Smart financing is ultimately about making pragmatic decisions; this means considering both long term and short-term consequences of any decision that is made regarding finance.