Explain what sources of finance are available for small to medium sized companies and explain why they sometimes face difficulties in raising finance

Topics: Venture capital, Corporate finance, Angel investor Pages: 14 (2502 words) Published: September 12, 2014
Content
Introduction3
1 Some important financing sources for SMEs4
1.1 Different stages in raising finance4
1.2 Venture Capital: a light of hope for the SMEs 5
1.3 Leasing and Factoring: special survival skills7
2 Difficulties for SMEs in raising finance8
2.1 Biggest trouble: lack of credit records8
2.2 Capital constraints9
2.3 Other barriers10
3 Conclusion10
Reference11

Explain what sources of finance are available for small to medium sized companies and explain why they sometimes face difficulties in raising finance

Abstract: This article examines which types of finance are more suitable for the SMEs, also analysing the disadvantages on them when raising finance. Unlike the large companies, SMEs have difficulties in getting enough money to develop. SMEs are more likely focused on the Venture Capital and some informal finance, such as Business Angel Financing and relationship lending. Also the special tools, like leasing and factoring, are quite useful when they suffering financial troubles. Difficulties in raising finance are numerous, for instance, the policy of the government and legal protections, but sometimes ownership might be a barrier, as well as the credit information sharing. Key words: SMEs, Raising Finance, Venture Capital, Barriers

Introduction
For a long time, small or medium-sized enterprises(SMEs) have played important roles in the development of national economy construction. And lots of research have been set up to look for the solution for the SMEs in raising finance. Putting so much efforts on SMEs based on two reasons: on one hand, SMEs are the engine of economic development; on the other hand, banks and some institutions fail to invest SMEs which will impede their growth in the society, and will constrain the development of society.(Beck, 2006) SMEs have been defined in various ways, and lots of the definitions include the number of employees, the investors, the suppliers and most importantly the assets they have. The Journal Of Enterprising Culture (2003: 174)said SMEs should be less than 100 employees, including the managers. But no matter how many people they have, the point of the SMEs is they are not large, which should be the main feature of SMEs. Because they are not big enough, they have less credit information to the bank, so it is hard for them to get a large amount of money from the banks.(Ptacek, 2012) In this situation, they will definitely suffer from a short of capital. Additionally, constrains that keep SMEs from developing are numerous. Most important and existing in almost every SME is the problem of credit. Considering credit issue, the better way for SMEs si providing the hard information, but unfortunately most of them can only give soft information. Hard information refers to the quantitive, and soft information refers to credit which cannot be counted.(Petersen, 2004). The following section shows the stages of raising finance, from the start-ups to become large companies, and discusses what finance sources should be used in different stages. After that, venture capital, angel financing, relationship lending, and the specific financing tools like leasing and factoring will be highlighting. The second section illustrates some barriers SMEs will face, and the most significant would be credits or reputations. Sometimes SMEs might suffer from bad educational owner-managers, and maybe the ethnic has some influences. The third section offers conclusions and recommendations.

1 Some important financing sources for SMEs
1.1 Different stages in raising finance
Lots of choices allow the companies to raise money, but it is extremely significant for the companies pick the right financing. The following is showing the different stages when raise funds. Firstly, self-raised funds. At the beginning of the SMEs, it is an effective step to use venture capital, leasing and factoring. In most case, the start-up fund is far from...
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