The various type of SME Financing

November 12, 2020

Growing your business demands quick and regular access to finance. Yet, the difficulty of acquiring fast funding is one of the biggest challenges that small and medium-sized enterprises (SME) face in Kuwait today.
As a result, business owners and financial managers often get trapped in a familiar and frustrating process:

1- Confusing paperwork and application requirements
2- Unreasonably high interest rates for SME clients
3- Long interview sessions
4- Lack of business loan products
5- Unclear fund payment periods

SME financing shouldn’t have to be this complicated. And it no longer has to be.

SME Financing

Apply within 10 minutes and get funding fast. Choosing the best business loan product for your business, however, requires some careful research.
In this article, we will examine in detail SME loans by type, This includes numerous loan types that you can acquire easily using FinFirst’s platform.
Finally, we’ll detail the main factors that contribute to the cost of a loan, which you will need to research in order to get the best deal.
To jump ahead and get funded fast click here.

6 main types of SME financing you can acquire from banks and other financial organizations:

1- Working Capital Loans

working capital loans are short-term loans that provide businesses with an extra cash boost needed to meet their short-term obligations. While operating a business, there are circumstances when your working capital may become negative, such as when your current liabilities exceed your current assets. In these instances, you’ll need to consider taking out a working capital loan to meet the shortfall so that you can continue operations.Indeed, every business needs positive working capital to meet daily expenses, emergencies, and short-term debts. To calculate working capital, you’ll need to take the difference between your current assets (stock, cash, debtors, etc.) and current liabilities (credit, accruals, etc.). This measures the short-term solvency (your ability to meet short term obligations) of your business.

2- Business Line of Credit

Business Line of Credit This is the technical term for working capital finance. In essence, a business line of credit is the business counterpart of a credit card. It provides a maximum amount of funds that businesses can access when they need it. After withdrawing and repaying this loan, a company can choose to borrow it again (or borrow a higher amount in some cases). This is also known as a revolving credit line. The beauty of this product is that it functions as a reusable business loan. It is always under a short-term duration, usually for one year.

3- Invoice Financing

Invoice financing is another way to improve the short-term solvency of your business. There are times when you cannot wait for the due date on the invoice you sent to your customers. You need the cash urgently to meet some operational expenses or short-term obligations. In those instances, rather than wait, you can use invoice financing. With invoice financing, the bank provides you with a credit against the invoice you sent to your customer. The loan often ranges between 70% to 85% of the total due amount. When the bank gets the money from your debtor, they give you the remaining amount and collect a certain percentage on it as fees or interest.

4- Business Asset Financing

Business Expansion Loans Unlike working capital loans, business expansion loans are long-term loans devoted to the expansion plans of a business. You can apply for a business expansion loan if you are entering a new market, planning to increase market share, or taking a new product to the market. These activities usually require large cash outflows that are better financed through debt, namely by taking on a business loan. Business expansion loans provide you with the funds for these capital-intensive, long-term projects.

5- Asset Purchase Loans

Asset purchase loans are similar to car loans. However, in this case the bank provides you with funds to purchase property and equipment needed for your business. Asset purchase loans, like car loans, are secured on the value of the asset you are buying. Consequently, in the case of default, the bank can repossess the asset. Asset purchase loans can help you acquire assets that will improve productivity, enhance output, reduce cost, and increase profit.

6- Fleeting Financing

Fleet financing is a type of asset purchase financing. The difference is that the former concentrates on businesses in passenger transport, bus rental, car rental, vehicle rental, and tourism who use a fleet of vehicles as part of their daily operations. If you have a business in this industry, fleet financing provides you with the credit to purchase a fleet of vehicles for your operations. Like asset purchase financing, the loan is secured on the fleet of vehicles.

Understanding these types of business loans will help you identify the one that will meet your needs at every point. However, now it is time to begin to prepare to access these loans.

Higher Chance of SME financing

Many businesses take loan applications as a guessing game that can go both ways. It is not. With proper preparation, you can enhance your chances of acquiring business loan approval from a lender.
What should you be doing right now to qualify for the business loan of your choice?
Here are four important steps:

1- Research and adhere to the minimum requirements: Before you apply for a business loan, research the minimum requirements for the type of loan you are considering to avoid complications on the way.
2- Good financial reports: Ensure your financial reports are in good order before applying for a loan.
3- Prepare a sound financial plan: Prepare a financial plan that will convince the lender that the investment will create significant returns your business. Here is how you can create a financial plan.
4- Provide collateral: Depending on the strength of your standing at the bank, ensure you have collateral. This may reduce interest rates for the loan.

The Cost of Business Loans Banks charge a certain interest rate (annual percentage rate) on every business loan. The interest rate is often a measure of the credit-worthiness of your business. Banks tend to offer lower interest rates for businesses with better credit-worthiness. Below are some factors that determine these interest rates.

Factors that Determine the interest rate of business loans


Secured business loans are less expensive than unsecured ones. With secured loans, the banks have minimized their risk, usually by utilizing collateral. Conversely, unsecured loans carry greater risk. Therefore, the latter comes with a higher interest rate.

Financial Situation

Your financial statements will show your current financial position. If your records show a great capacity to repay, banks will know they are taking a lesser risk and will be willing to offer a lower interest rate.

Loan Repayment Term

The loan repayment term is how long it will take to repay the loan. Paying your loans faster will unlock lower interest rates, or vice versa. Though these are the factors banks use to determine interest rates, there are still vast differences between the deals that each bank offers. This is perhaps the most important ingredient to unlocking your ideal business loan.

What you should consider when applying for SME financing

The first factor and the most important you want to consider is the interest rate. The interest rate is the cost of the loan to your business. The lower the interest rate, the less the cost to your business. However, getting a better deal goes beyond the interest rate on the loan.

Some other factors you should consider when applying for SME financing:

1- Paperwork: The best business loan providers will not bury you in unending paperwork. While paperwork is integral to the application process, it can become stringent.
2- Processing time: The best business loan providers will have a faster approval process. They will not make you wait endlessly to provide you with the credit you need.
3- Repayment options: The flexibility of repayment terms is another thing you want to look out for. Some banks will allow you to choose from many repayment options that suit your business.
4- Customer service: A good lender alway treats its customers well. They’ll also go above and beyond to be available on digital platforms.
5- Trustworthiness: While lenders evaluate the credit-worthiness of borrowers, borrowers should also evaluate the trustworthiness of lenders. You should look for trustworthy lenders with a good track record.

We all know shopping around for the best deal is not as easy as it sounds. It can involve endless calls, physical visits to bank branches, email exchanges, and number crunching to evaluate your options and choose the best business loan provider. Not any more.


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