Explain what sources of finance are available for small to medium sized companies and explain why they sometimes face difficulties in raising finance
Explain what sources of finance are available for small to medium sized companies and explain why they sometimes face difficulties in raising finance
1. Introduction
The SME (Small and medium enterprise) sector is one of the crucial important contributor to economic growth in terms of Gross Domestic Product(GDP) and job creation worldwide(IFC,2010). According to OECD(2006), SMEs had created more than sixty percent of the job opportunities for OECD countries. That situation for developing counties are even more obvious. There is no doubt that the development of SMEs is closely linked to national economy. The growth of SME sector, however, presents a stalled tendency, even recession situation, owing to the deficiency of accessing to finance. This circumstance may restrict and hinder the development of small and medium-sized companies, then indirectly affect the country's economy. Therefore, how to financing efficiently and overcoming fund-raising barriers for its ongoing progress becomes a indispensable part and parcel of their operation activities. The aims of this article is to demonstrate what funds-raising techniques could be adapted by SMEs, then examine what obstacles are faced by them in the financing activities, and lastly, giving a conclusion.
2. Funds-raising sources available for SME
2.1 Internal financing
At the initial stage, SMEs have to obtain capital, internally, from owners, relatives, friends and existing partner or firm’s retained earnings (Abdulaziz& Andrew, 2013), inasmuch as the shortage of transparent and “hard” information, for instance, permanent track records from bank, financial statement, credit scoring as well as higher intangible assets. After that, they tend to seek alternative sources, such as external ways, for financing for the sake of its progress in the later phase.
2.2 External equity-based financing
External equity financing includes venture capital, business angels and public equity. In general, they are more
1. Introduction
The SME (Small and medium enterprise) sector is one of the crucial important contributor to economic growth in terms of Gross Domestic Product(GDP) and job creation worldwide(IFC,2010). According to OECD(2006), SMEs had created more than sixty percent of the job opportunities for OECD countries. That situation for developing counties are even more obvious. There is no doubt that the development of SMEs is closely linked to national economy. The growth of SME sector, however, presents a stalled tendency, even recession situation, owing to the deficiency of accessing to finance. This circumstance may restrict and hinder the development of small and medium-sized companies, then indirectly affect the country's economy. Therefore, how to financing efficiently and overcoming fund-raising barriers for its ongoing progress becomes a indispensable part and parcel of their operation activities. The aims of this article is to demonstrate what funds-raising techniques could be adapted by SMEs, then examine what obstacles are faced by them in the financing activities, and lastly, giving a conclusion.
2. Funds-raising sources available for SME
2.1 Internal financing
At the initial stage, SMEs have to obtain capital, internally, from owners, relatives, friends and existing partner or firm’s retained earnings (Abdulaziz& Andrew, 2013), inasmuch as the shortage of transparent and “hard” information, for instance, permanent track records from bank, financial statement, credit scoring as well as higher intangible assets. After that, they tend to seek alternative sources, such as external ways, for financing for the sake of its progress in the later phase.
2.2 External equity-based financing
External equity financing includes venture capital, business angels and public equity. In general, they are more
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