SMEs Challenges & BPF Solutions, Part 3: Financing
Financing is the second challenge that SMEs face. Once the business is planned, capital availability becomes one of the most important factors to make a company grow and to make the company operation more efficient as well as to reduce the stress level of the owner or comptroller. Once the growth is planned, the funds are required to hire new staff, buy additional equipment and increase sales by offering 30 or 60-day payment terms. Without this freedom, a lot of time is spent collecting receivables, paying salaries on time and making things happen with limited resources and support systems.
While the amount of financing is dependent upon the stage and type of business that is going to run, generally, the businesses go through the three phases: startup, growth and exit. All three stages require capital but for different purposes. Just like any powerful tool, money is needed to run a business efficiently, to grow and exit effectively. However, there are two challenges associated with it:
To get a sufficient amount of funds to meet the need, and
To minimize the risk of borrowers if the business does not move forward as planned due to unusual circumstances such as Covid.
Whereas most business owners are not good at structuring the deal to get the money needed and most bankers don’t support structuring the loan to maximize the amount and minimizing the risk, small businesses often get underfunded by the banks, especially at the startup. This increases the business operational challenges as well as increases the personal risk in case of business failure.
BPF Solutions has decades of experience in structuring the business through Business planning so that an appropriate amount of funding is achieved at the right times as well as minimize the owners’ personal risk in case business doesn’t work out due to unforeseen circumstances. It is clear that there is always a risk, so we structure business loans that are adequate to meet business needs as well as keep entrepreneurs as much secure as possible. That means if the business fails, the lenders will get it but at least the entrepreneur remains secure.
For established and growing businesses, the objectives remain the same. The structuring is different but the intent is to get an adequate amount of loan at the lowest possible rates and with minimum liability possible. Growth working capital is one of the biggest challenges for SMEs, and they are always trying to manage their money as they don't have working capital financing and working capital financing cannot happen until having proper planning.
Finally, there comes a time when an owner decides to sell his/her business and get the maximum value possible in the form of cash. To make this happen, the business has to be self-running so that the new owner can manage it as efficiently as it is right now and it is quite profitable and comforting to the new owner. This requires transferring the skills and experience of the current owner into the operational management of the company, which relies on hiring and training staff and restructuring operations. This too often requires the injection of capital and restructuring of the business. BPF Solutions does this too by creating a new business plan, acquiring the necessary capital to implement the plan and a few years later selling the business at 1.5 to 3 times the value that it can be sold without the changes. There are many factors involved in planning, structuring, funding, etc. To successfully start, grow and exit the business. During the oncoming blogs, we are going to address these situations.
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