What types of financing for SMEs exist?
Posted: Tue Jan 07, 2025 9:29 am
I'll start with the most logical option, which is a bank loan. In fact, the vast majority of banks require that an SME be at least two years old before being able to apply for a SME loan.
In addition, the business or entrepreneur will have to provide some type of payment guarantee, whether it be a property and/or a guarantor/jointly liable party. It is important to note that an SME loan can take at least 3 to 5 months to be authorized by the bank's credit committee.
Normally, a bank loan will have two costs for the credit granted . The first is the opening fee that seeks to cover the costs that the bank has for the credit evaluation. This fee is normally estonia phone data around 2% of the value of the credit line. The next cost is the interest rate that is only charged on the outstanding balance or unpaid balances, banks present it based on TIIE plus a few percentage points (pp).
In my analysis, most banks will add between 5.5pp and 30pp for SME loans. From what I have seen in my experience, typically an SME loan will be offered with an annual interest rate on outstanding balances of between 16% and 20%.
SME Financial Institutions
SME Financing Institutions are the fastest growing players in the world of SME credit. These financing institutions provide credit to any SME regardless of the industry in which they operate. Some are differentiated by having a digital offering, in which the prospect can apply and manage their credit through a web portal and/or mobile application.
These players are usually more open to offering credit to SMEs with less than two years of operation. There are even some SME Financing Companies that do so after only a few months of operation and without requiring the provision of collateral or guarantor.
This flexibility increases the risk for the bidders, which impacts the cost of financing. In general, SME Financing Institutions include 3 costs in a financing proposal:
Opening commission which is a factor (≈5%) of the credit value.
Commission for dispersion or disposal (between 2% and 5%) charged on the amount of resources actually received.
The interest rate on outstanding balances will be a factor of approximately 28%.
Niche financial institutions
Niche financial institutions have extensive knowledge of the industry in which the entrepreneur who will receive financing operates. Because of their knowledge, they deeply understand the stages, timing, key metrics and needs of the industry.
For this reason, it is easier for them to understand the borrower in depth; this allows them to offer credit to entities that participate in that industry without the need for complex guarantees and with little operating time.
Normally, niche financial institutions will offer lower costs than SME financial institutions and, like the latter, they will have lower requirements and much faster approval times.
If you want to know more about sources of financing for entrepreneurs, visit the article government support to start a business where we have detailed information.
In addition, the business or entrepreneur will have to provide some type of payment guarantee, whether it be a property and/or a guarantor/jointly liable party. It is important to note that an SME loan can take at least 3 to 5 months to be authorized by the bank's credit committee.
Normally, a bank loan will have two costs for the credit granted . The first is the opening fee that seeks to cover the costs that the bank has for the credit evaluation. This fee is normally estonia phone data around 2% of the value of the credit line. The next cost is the interest rate that is only charged on the outstanding balance or unpaid balances, banks present it based on TIIE plus a few percentage points (pp).
In my analysis, most banks will add between 5.5pp and 30pp for SME loans. From what I have seen in my experience, typically an SME loan will be offered with an annual interest rate on outstanding balances of between 16% and 20%.
SME Financial Institutions
SME Financing Institutions are the fastest growing players in the world of SME credit. These financing institutions provide credit to any SME regardless of the industry in which they operate. Some are differentiated by having a digital offering, in which the prospect can apply and manage their credit through a web portal and/or mobile application.
These players are usually more open to offering credit to SMEs with less than two years of operation. There are even some SME Financing Companies that do so after only a few months of operation and without requiring the provision of collateral or guarantor.
This flexibility increases the risk for the bidders, which impacts the cost of financing. In general, SME Financing Institutions include 3 costs in a financing proposal:
Opening commission which is a factor (≈5%) of the credit value.
Commission for dispersion or disposal (between 2% and 5%) charged on the amount of resources actually received.
The interest rate on outstanding balances will be a factor of approximately 28%.
Niche financial institutions
Niche financial institutions have extensive knowledge of the industry in which the entrepreneur who will receive financing operates. Because of their knowledge, they deeply understand the stages, timing, key metrics and needs of the industry.
For this reason, it is easier for them to understand the borrower in depth; this allows them to offer credit to entities that participate in that industry without the need for complex guarantees and with little operating time.
Normally, niche financial institutions will offer lower costs than SME financial institutions and, like the latter, they will have lower requirements and much faster approval times.
If you want to know more about sources of financing for entrepreneurs, visit the article government support to start a business where we have detailed information.