Empowering Entrepreneurs: Cracking the Code of SME Financing

12 March 2024

Sarah Bacon – Chief Operating Officer at CredibleX

This article is part of a series, in collaboration with the financing experts at CredibleX, designed to help UAE businesses identify the right type of financing strategy and solutions for their business. Whether you need access to finance to enable expansion or simply to balance your cash flow, we will guide you through the options available to you and help to pinpoint the right solution.

Small and medium-sized enterprises (SMEs) are typically founded with purpose – an idea the founder believes will make the lives of their customers better.

Most SMEs don’t start out with a goal to develop a Warren Buffett-type of financial literacy, and they shouldn’t need to. Launching and scaling a new business is tough enough without studying financial jargon late at night.

The goal of this article is to explain some of the lesser known financing options available to SMEs, so they are equipped with knowledge for when, or if, they need it.

For a long time the industry-standard financing option was a 3 or 4 year term loan. Take out a big chunk of money and repay a fixed amount every month over a number of years. Long-term loans are simple and can be useful, for example when opening a new office or launching a new product line. However committing to multi-year fixed repayments can be daunting. As Covid-19 taught us, the future is uncertain.

The good news is a wave of new financing options have entered the market, often championed by financial technology startups, or “fintechs”, who are disrupting the status quo.

Fintechs differ in their approach but generally use technology, data and fully digital experiences to offer flexible and fast financing solutions. This gives more choice and buying power to SMEs, who until now were often limited to the products of their bank.

Some of the financing options championed by fintechs include:

Working Capital Finance

Short-term, fixed repayment loans, focused on keeping the business running smoothly on a daily basis, for example by ensuring fixed costs are covered during seasonal periods of low sales. The loan term may range from 1 to 12 months

Invoice financing

Financing unpaid invoices, with the payment to the SME typically within days instead of the payment terms of the invoice. The loan term may be as low as a few days to months.

Revenue-based financing

Repayments by the SME are made by automatically deducting an agreed percentage of sales. In this way repayments flex up or down with the business and are not fixed every month. The loan term is determined by the amount of time it takes for the repayment to be made.

The rise of these newer and agile forms of financing mean SMEs have more choice over what works best for their business and can switch over time as their businesses evolve. With 86% of private sector workers and 94% of all businesses in the UAE classified as SMEs, growing this ecosystem is key to economic growth.

For more information on these financing options you can check out our recent article.

Disclaimer:

The information provided herein, including any opinions, views, or recommendations expressed, is for informational purposes only and should not be construed as financial advice. Any investment or financial decision should be made after thorough research and consideration of your own financial situation and risk tolerance. We do not assume any responsibility for the accuracy, completeness, or timeliness of the information provided.

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