Definition Of Small And Medium Enterprises Finance Essay

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The definition of ”small business ” differ by different country and by different industry. Small enterprise have limited employees, sales is also low and focus on certain localised business regions. Some of the small business are run by families. Most of the small or medium business are run by single owners, for example: a neighbourhood restaurant or a local bakery. Being small seems to bring them many advantages. The majority of businesses are considered small businesses and they currently employ 13.2 million people which accounts for greater than 58% of the UK private sector workforce (Connell,2007),and Mack(1999) also claims that virtually all the net new jobs being created are by small firms. Moreover, they play an important role in increasing the GDP of households. Haynes(2007) demonstrates that the wealth and income of households owning businesses tend to grow faster than ones that do not own businesses. Small businesses can be set up easily, entrepreneurs have their independence in making decisions and they do not need to consider others’ opinions. Small businesses serve fewer customers and usually have more frequent contact with those customers than large businesses. They also get the direct information from customers about what they like or dislike. Therefore, small businesses gain an advantage when customers have unique needs, want more individual attention, and are willing to pay a bit more for the product or service to obtain what they really want.

On the other hand, all small businesses are not succeed. In fact, their failure rate seems to be higher than larger businesses. There is only one owner thus capital is very limited and difficulties in many areas become noticeable. As a result of having difficulty in getting loans from the banks. In the SAM’s the main daily financial source is a from the customers. Some small enterprise have cash flow problems frequently due to customers who are late payers; some are closed down as a result of the inability to pay suppliers or debts in time. Additionally, over one third small businesses experienced cash flow problems during the past two years . Furthermore, depending on the size and nature of businesses, environmental legislations have brought them difficulties in seeking efficient environmental solutions such as sourcing environmentally friendly products and limiting manufacture waste. Further, one of the business needs is insurance, which provides an important means to handle business risks. In recent years, insurance has become hard to find for small businesses, is less affordable and gives less protection.

Cash is like the blood in human body for all companies. So, the problem of financing is one of the most important issues in company operations. Appropriate and healthy sources of capital is the primary issue for an enterprise, especially for the SMEs. As policy, the reasons for their ideas, and SMEs’ own flaw, so that the financing channels for SMEs is relatively narrow, a shortage of funds has become a major bottleneck for the development of SMEs. This paper is trying to explore into the financing problems that SMEs face and provide some feasible sources of finance which can ease the cash flow pressures for SMEs.

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