Sources Of Finance For Smes - 1419 Words

Introduction As the world economy has developed rapidly these years, small to medium sized companies are playing important roles in the acceleration of the global economy development especially in those developing countries. An optimistic finance environment is especially needed to the small and medium-sized company at each stage of their life cycle, from creation through operation, development, restructuring, recovery and beyond. (Agrebi, Mohamed,2009) In this paper, the mainly source of finance to SMEs and the financing difficulties which it may face will be described. The sources of finance for SMEs As the capital of the company can directly impact the whole operation of the company, a lack of money can bring huge lost to the†¦show more content†¦Debt is the money which borrowed from a lender and pay interest on the investment. Equity is the stocks and shares which the company owned now and can be used to convert to cash as a financial investment. Sources of investment which are available for the small and medium sized companies are number of ways and companies need to choose them depend on the nature of the business. Berger, A., and G. Udell (1995) have found that it can be simply classified into two forms of supply money for SMEs which are internal resources and external credit. The internal resources include, retained earnings, current assets, fixed assets and the initial owner financing. Among them the easier one is the retained earnings, as they are liquid assets. This always happens in a small business which not uses this part of money to pay out to the owners but reinvest it into the company. Current assets and fixed assets are the capitals which owned by the company itself but these two kinds of assets have its different chrematistics. Compared to the fixed assets, the current assets can be directly invested into the company because it is consists of only cash or anything that doesn’t waste a long time to be converted into cash. The initial owner financing which are also called the personal savings. It is the backbone of some small business. As it owned by the owners it can be directly used to help the company suffer from the financial risk. Robert Gibson (2014) has