9 Benefits And Sources Of Financing Small And Medium Enterprises

Small and medium enterprises (SMEs) are considered the backbone of any nation. They have been responsible for economic growth in various countries around the world. 

They play very important roles in Nigeria’s growth and development also, as they are to be encouraged and constitute up to over 75% of  income sources to the people living in many rural and sub urban areas.
They contribute positively to the development of the country by influencing the distribution  and redistribution of income in both functional and nominal terms at the national level and by extension the whole economy in general. 

The contribution of SMEs to a nation's gross productivity, employment opportunities and other economic development parameters both in developed and developing countries is succinctly summarized as below:
1. Greater utilization of raw materials 
2. Employment generation.
3. Encourages rural development. 
4. Development of entrepreneurship. 
5. Mobilization of local savings.
6. Linkages with bigger industries.
7. Provision of regional balance by spreading investments more evenly.
8. Provision of avenue for self employment.
9.  Provision of opportunities for training managers and semi-skilled workers. 
Thus, the role of SMEs in developing any nation cannot be over emphasized.

Sources of Financing SMEs

Every business organization needs finance and where the finance is inadequate the business development will be slow. Just like big businesses SMEs get their funding from a number of sources.
The major sources of financing SMEs can be classified as debt and equity. 

 

The capital structure of a business firm refers to the composition of long-term sources of funds, viz long-term debt-debenture, preference share and equity shares.
The finance literature recognizes the importance of equity in business operations and sources can be outlined to include: Debt Sources of Finance, Owner’s Capital / Equity Sources of Finance, Funds from Specialized Financial Institution and Finance from Venture Capitalist.
  Seven major sources of funding are available to SMEs are:

1. Personal resources.

2. Family and friends.

3. Partners or business associates.

4. Informal financial markets comprising, individuals and group, including pool fund groups  and co-operative societies.

5. Banks (commercial and merchant). Specialized banks and community banks, Digital Banks Like Fairmoney MFB.

6 Specialized funding facilities e.g. NERFUND, the World Bank Loan Scheme for SMEs

managed by CBN and the African Development Bank (ADB) loan scheme for export

stimulation in the SME sector, SMIEIS etc.

7 Specialized financial institutions such as the Nigerian Bank for commerce and Industry

(NBCI), Nigerian Industrial Development Bank (NIDB) and the Nigerian Agricultural and

co-operative Bank (NACB), NISRAL Microfinance bank.  There are more sources, you can add more below. Stay tuned. Have a lovely day and stay safe.