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SMEs and Finance

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Aleksandr Iuzhda

on 23 October 2013

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Transcript of SMEs and Finance

SMEs and Finance
Equity financing vs. Debt financing
Sources of finance for a growing business
Going public
Goal
To become a highly successful and international business
Finance case study
INB6A2 Business & Management of SME’s

Layout
Sara and her business
Sources of finance in the initial stage
Equity financing
Debt financing
Sources of finance for a growing business
Going public
Conclusion and recommendations
Ghita Rais

Aleksandr Iuzhda
Sources of finance for established businesses
Overdraft and term loan
Factoring and invoice discounting
Business sells accounts receivable
Immediately receives money
Factoring company:
Runs the sales ledger
Chases debtors
Venture capital
Private & for-profit companies
Pools of capital, large amounts of money
Purchase equity positions
For high growth and profit potential
For established companies


Credit cards
Good option for a growing company as well

Quick and easy to use
Widely accepted
More available, but more expensive
Possible to get discount

Leasing and hire purchase
Financing fixed assets

Leasing: use of equipment without ownership
But = purchase option at the end of the lease period
Hire Purchase: both use of the asset and ownership
Trade credit
Advantages and disadvantages
Personal savings
Friends and families
Short-term loans
Credit cards
Sara and her business
she is very creative
BUT
she lacks business skills and doesn't know how to finance the business
she is thinking to set up her own business
her smoothies has become famous
she is brilliant at making smoothies
Business angels
Choosing investment bank
Due diligence
Prospectus
Flotation
Least expensive source of funds available
Self-sufficiency
Ownership
Good signal for lenders
Liability and Risk of loss
More patient than an outside investor
Trust: security unlikely to be required
Profit stays in the family

Small amounts
High risk of harming relationships

Entrepreneurial skills and know-how
Investment based on business plan rather than security
No interest or capital repayments

Profits will go to the investors
Hands-on expertise: interference in the business
Control

Term of loan is fixed as well as interest and capital repayments
Requires security
Requires good CF to pay interest and capital
Fast
Convenient
Interest-free loan if paid within the grace period
Expensive
Risky

Are the main sources of external financing
Banks are still reluctant to give loans and allow overdrafts
Overdrafts: good solution to short-term financing
However, interest charged higher than loans, but still cheap



Opportunities:
Size of capital ammount
Liquidity
Value
Image
Challenges:
Costs
Disclosure
Requirements
Shareholder pressure
Vulnerable of takeovers
Thank you for your attention


Get short-term financing
Pay for delivered goods later
Possible discounts
However, venture’s flexibility with selecting suppliers is restricted
Full transcript