If you’re an SME looking to secure a loan you first need to ensure you know exactly what the market has to offer you. With more and more SMEs looking for financial assistance, here’s a brief overview of what’s available.
Collateral based lending
Many traditional banks and finance companies are willing to offer collateral based lending to SMEs. Often this type of credit consists of a combination of asset based finance, contribution based finance, and factoring based finance. Put simply, it means that you secure your loan with an asset, which is taken as collateral should you be unable to make repayments.
Of course, a majority of SMEs aren’t able to acquire a collateral based loan, as they lack the security and high level of returns required.
Information based lending
Usually, information based lending incorporates financial statement lending, credit scoring and relationship lending. In essence, this means providing your possible lender with as much information on your business as possible. This information is incredibly detailed and includes your business’ operations, profitability, credit, and its financial health.
This is a fairly invasive process, so it means exposing your business’ most sensitive information to a third party with varying success. Depending on your lender and the accuracy of the information you give, this process should be relatively fluid.
Viability based financing
Viability based financing is most closely associated with venture capital and sees lenders or finance providers becoming involved in assisting the business itself and providing detailed reviews and helping develop a business plan. The aim here is for potential lenders to ensure they reduce risk and maximise productivity and returns.
A hesitation some SMEs may have with this is relinquishing control in this way, and allowing a third party to come in and assist with the actual running of the business. This is often a cause for concern from many SME owners and can cause friction.
Small ticket loan
A small ticket loan is exactly what it sounds like and can be useful for all types of SMEs. Many banks don’t tend to offer small ticket loans, as they usually cost the bank more to process than they get back in return, but there are many start-up companies operating today that have the availability to offer this type of financial assistance.
As risk may be the reliability of the loan and the lender, and a downside to a small ticket loan is that it is indeed small. SMEs that are looking at this type of loan as an option need to carefully plan exactly how it should be utilised.
GIC offers a range of secured and unsecured loans designed to give SMEs the boost they need to thrive. You can view the services we offer here and contact out team to discover which finance option best meets your needs.