What Are the Different Types of Small Business Capital?

Small and medium-sized enterprises are larger production enterprises than micro-enterprises, that is, enterprises with a high concentration of labor, labor means, labor objects, and product production. Small and medium-sized enterprises play a very important role in the national economy and are the focus of national construction. It meets the objective requirements of socialization of production and scientific and technological progress, and can bring significant economic benefits to investment and production operations. Small and medium-sized enterprises are important carriers for implementing mass entrepreneurship and innovation. They have an irreplaceable role in increasing employment, promoting economic growth, technological innovation and social harmony and stability, and have important strategic significance for national economic and social development. ^[1]

SME

Small and medium-sized enterprises are larger production enterprises than micro-enterprises, that is, enterprises with a high concentration of labor, labor means, labor objects, and product production. Small and medium-sized enterprises play a very important role in the national economy and are the focus of national construction. It meets the objective requirements of socialization of production and scientific and technological progress, and can bring significant economic benefits to investment and production operations. SMEs are

Small and medium-sized enterprises are an important part of China's national economy. They are built for the rapid growth of the national economy and the absorption of labor and employment.

In one sentence: the advantages and opportunities of SMEs are obvious, but competition and risks coexist. Compared with large enterprises, SMEs have the advantages of fast operating decisions, relatively low costs and comprehensive risks, and a keen response to the market, flexible behavior and fast response speed. In addition, there are many private family managers in small and medium-sized enterprises. The internal orders are unified and the execution is strong. They can quickly coordinate all resources within the enterprise to maximize its efficiency and benefits.

On the one hand, SMEs are more flexible in adapting to changes, but on the other hand, due to the small size of the company, it is more difficult to raise funds because the company lacks rich assets as collateral for bank loans. In this regard, governments in many regions have provided special loans to SMEs to help them develop. on the other hand,

When developing a specific financing strategy, SMEs should pay attention to the following aspects:

(I) Pursue rationality in the amount of funds

For large companies represented by joint-stock companies, the purpose of financing is to achieve the best capital structure, that is, to pursue the lowest cost of capital and maximize the value of the enterprise. For small and medium-sized enterprises, the purpose of financing is to directly ensure the production and operation needs. funds. Insufficient funds will affect production and development, while excess funds will also reduce the effectiveness of capital use and cause waste. Because it is not easy for small and medium-sized enterprises to finance, when they encounter a more relaxed funding environment, operators often tend to make the mistake of "Korean soldiers, better the better". But if the funds raised are used unreasonably or are not really needed, then good things become bad things, and the enterprise may bear a heavy debt burden, which will further affect the financing ability and profitability.

(II) Pursuit of efficiency in the use of funds

Small and medium-sized enterprises do not have as much choice in financing channels and methods as large enterprises, but this does not mean that small and medium-sized enterprises can only "hunger and hungry for food". On the contrary, because of their weak ability to resist risks and difficulties in financing, they should be more Each fund is well-balanced, taking into account factors such as operating costs and capital costs, financing risks, and investment returns. It is necessary to combine the source and direction of funds, analyze the relationship between the cost rate of funds and investment income strings, and avoid decision errors. .

(3) Pursuit of matching in capital structure

The use of funds by SMEs determines the type and amount of funds raised. We know that the total assets of an enterprise are composed of two parts: current assets and non-current assets. Current assets are divided into two different characteristics: one is the current assets whose volume fluctuates with changes in production and operation, so-called temporary current assets; the other is current assets that maintain a stable level for a long time similar to fixed assets, that is, So-called permanent liquid assets. According to the structural matching principle, the funds used by small and medium-sized enterprises for fixed assets and permanent liquid assets should be raised in the medium and long-term financing mode; funds required for changes in business activities due to seasonal, cyclical and random factors , It is advisable to raise funds mainly through short-term financing. It is emphasized that the matching relationship between financing and investment in the capital structure is particularly important for SMEs.

(IV) In the operation of funds, pay more attention to the stock financing while pursuing incremental financing

Incremental financing refers to increasing the total capital occupancy in quantity to meet the needs of production and operation. Existing financing refers to adjusting the structure of capital occupancy and accelerating the turnover of funds to avoid unreasonable funds as much as possible without increasing the total capital occupancy Use to improve the use of unit funds to meet the growing production and operation needs of enterprises. The close combination of incremental fundraising and stock fundraising also reflects the inherent inevitable link between fundraising activities of SMEs and investment activities, because stock fundraising is actually a type of capital use, which belongs to the category of investment activities. For example, if an enterprise can use idle equipment, sale, transfer and other forms of "inventory financing" in a timely manner, it can not only avoid losses and backlogs of funds, but also help improve the liquidity of long-term funds and reduce excessive financial pressure.

(V) In the financing channels, the pursuit of winning with credit

Taking the initiative to maintain good relations with financial institutions, so that they understand the company, see the company's ambitious prospects, and are willing to support the development of the company, this is a required lesson for every successful SME operator. Specifically, it includes two aspects: On the one hand, it is the choice of financial institutions. Financial institutions that are interested in the establishment and growth prospects of SMEs and are willing to invest in them should be selected; financial institutions that can give business guidance to enterprises; there are many branches and convenient transactions Financial institutions with sufficient funds and low capital expenses; financial institutions with good staff and good professional ethics. On the other hand, small and medium-sized enterprises should proactively communicate the company's operating principles, development plans, and financial status to cooperating financial institutions, explain the difficulties encountered, and win the trust and support of financial institutions with their performance and credibility. Or improper means to obtain funds.

(6) In terms of financing methods, choose a company that is suitable for its size, strength, and stage

After comparing the financing benefits and costs, it is necessary to consider what financing method to choose when financing is deemed necessary. When choosing a financing method, it is usually necessary to consider the size, strength, and development stage of the enterprise, and combine the characteristics of different financing methods to choose a financing method suitable for the development of the enterprise. For example, in the initial stage of SME entrepreneurship You can choose equity financing as its financing method, because in the early days of entrepreneurship, there is a lot of risk. There are very few creditors such as financial institutions to finance you. In equity financing, the funds of business owners and their friends and family members account for the vast majority. This part of financing is "internal financing" or "internal financing", also known as "investment by the enterprise". After the SMEs develop to a certain period and scale, they can choose debt financing. Debt financing mainly comes from financial institutions, including commercial banks and finance companies. Small and medium-sized enterprises belonging to the high-tech industry can consider the issue of equity financing on the GEM market; SMEs that do not meet the listing requirements can consider bank loan financing.

(7) In terms of financing methods, choose the financing method that is most conducive to improving the competitiveness of enterprises

SME financing usually brings the following direct impacts to enterprises: First, through financing, it can strengthen the capital strength of SMEs, enhance their ability to pay and their development potential; second, through financing, they can improve the credibility of SMEs and expand their products. Third, through financing, the scale of small and medium-sized enterprises can be increased and the profitability of enterprises can be enhanced, so as to make full use of the advantages of economies of scale to improve the competitiveness of enterprises in the market and accelerate the development of enterprises. However, the degree of improvement of corporate competitiveness varies greatly depending on the financing method and financing income of the company. For example, stock financing, especially the issuance of common shares for the first time and listing and circulation, will not only bring huge financial resources to enterprises, but also greatly increase the visibility and goodwill of enterprises, and improve their competitiveness. Therefore, when making financing decisions, SMEs must first choose the financing method that is most conducive to improving competitiveness. ^[2]