The idea of generating financing for small and medium enterprises is growing. However, there are many questions about the investment modalities or whether traditional options with loans could be better for these kinds of companies.
According to CNN Brasil, small and medium businesses account for 30% of Brazilian PIB (Produto Interno Bruto or Gross Domestic Product, GPD in English). Of this number, 50% are formal jobs, a big positive impact on millions of Brazilian lives.
In the United States, the scenario is similar: based on Exame, more than 30 million small companies generated almost 2/3 of new jobs in the country between 1995 and 2021.
And this is better: in 2021, 49% of new businesses have women as owners. Another driving group for North American entrepreneurship is African Americans, as the US Chamber of Commerce shows in the article above.
All this context gives us a good expectation about the eighth goal from Sustainable Development Goals (SDGs), created by the United Nations and with the challenge to be complete by 2023, the “Decent Work and Economic Growth”.
But, there are some common questions about funding: this is the best choice for every business? And what is necessary to consider at the moment of choice? It’s time to answer!
How funding for small and medium businesses works in practice
Funding is the concept of an investment that comes from third parties, through the banking or capital markets, with a repayment period compatible with the time of maturity and development that the investment will provide. Big organizations also offer investments and concessions, commonly known in the international market as grants.
The funding for small and medium businesses is different from loans. This happens with an agreement between the company and the financial institution, that will give the money on the condition that this value will be returned in the future, with interest increase.
In the case of funding rounds for small and medium businesses, the entrepreneur will need to search for the ideal type of investor for the company’s reality. Will be necessary to consider the type of funding too.
The main motivations for looking for funding for small and medium businesses are:
- Growth and expansion through cash flow;
- It’s easier to maintain operations;
- More possibilities for negotiation with suppliers;
- To invest in innovation and trends, for example in more effective communication with stakeholders and upgrade on results portfolio.
Advantages and disadvantages of funding
It’s important to highlight that funding gives more freedom to entrepreneurs, but this is for the opportunities and risks that businesses could deal with. So, is necessary a previous plan before any step in this way, to make sure that the growth of the business will remain sustainable.
About the advantages, the support of an investor group can be an important business relationship, that could be beyond the financial borders: they give support to deal with market fluctuation, monitoring trends and problems about the competition.
In an entrepreneur’s daily routine, these strategic points make so much difference, because normally it is just the small or medium owner who is responsible to do every operation of the business (sales, talking to the public, financial management).
For the investors, the funding is an excellent option for the search to return assets in the medium and long term, because these businesses are in development and used to have expansion and growth potential.
At the choice moment, these professionals consider things such as the size of the company, profitability, investment in fixed assets, and tangibility.
Regarding the disadvantages, entrepreneurs need to be aware of the control that investors will have. Because this could affect the authority of the founder in the future. The pressure to get good results can be a problem too.
How can we help you?
Through our expertise and strategy consulting, we chose the best funding for you and your business. We understand where the cash flow is going and how to access it.
With active listening and personalized attention, we create the ideal opportunity to make more value for your company, through funding or other ways.
