Small and Medium Enterprises (also abbreviated as SMEs) are small businesses that effectively run with operational models managed by only a small number of employees.
Businesses are classified as SMEs based on the defining terms proposed by the government in different parts of the world. SMEs have been a pedestal for many entrepreneurs to offer immense service and benefits to customers in the region where the business is located.
Unfortunately, SMEs have not been given fair treatment regarding funding and support from the governments and financial institutions. This needs to change!
The Importance of SMEs
Considering the importance of SMEs, it is surprising that these growing businesses lack the necessary funds to thrive like bigger companies.
Here are some of the significant benefits SMEs bring to their host countries…
A Decrease in Unemployment Rates
The bigger companies cannot employ everyone in the labour market. The SMEs step in to bridge this gap by employing thousands of qualified candidates who can leverage their jobs to get more professional experience.
SMEs have had a huge impact on economies in different parts of the world. The global impact on economies can be attributed to the high revenue drive of smaller businesses. SMEs also provide significant revenue through tax.
SMEs Promote Innovation
SMEs are more receptive to innovative ideas, which lead to higher efficiency, productivity, and better results in business, which is beneficial to the company and society.
The Challenges Faced by SMEs
The major issue that has hindered the growth of many SMEs is the lack of funds. Here are some of the reasons SMEs are ‘starved’ of funds…
Tough Credit Requirements
There are hardly any concessions when SMEs apply for loans to grow their business. The tough requirements demanded by loan providers make it difficult for SMEs to secure the funding needed to thrive in different industries.
Bias from Banks
The banks have shown apparent bias when providing loans to SMEs, even when the company meets the requirements. Instead, banks are more inclined to give loans to bigger companies.
Lack of Collateral for Loans
Many SMEs do not have the collateral needed to secure the loan needed to grow their business.
Hope for SMEs for Funding
There is hope for SMEs because many things can be done to support businesses in the SME category.
Here are some of the top solutions…
Support From Policymakers and Governments
The government in charge of making policies should be proactive about ensuring better conditions to allow SMEs to access loans easily. Policies made in this regard will be binding on loan providers to provide quick loans to the owners of smaller businesses to help them grow.
Governments can establish regulatory waivers that allow SMEs to source loans from major banks, without collateral or other stringent requirements.
Digital Banking Loans
The increasing acceptance of digital banking systems globally creates a potential source of funding for SMEs. Digital banking systems are designed to function across borders, thanks to globalisation. This means that an SME can access loans from a digital bank in another country where the conditions for loan grants are simpler, according to Eyal Nachum.
As we can see, SMEs also have a role to play. By establishing proper risk management systems, small businesses can present a business model that will convince loan providers of the minimal risks involved in granting their request for a loan. Have you suffered from this SME bias? Let us know!