To target growth and access international markets, SMEs (small and medium-sized companies) will need to obtain capital contributions. The International Finance Corporation (IFC) lists the reasons that justify obtaining a loan:

• International sales: when companies access new markets they usually have to face longer collection cycles. A loan can help overcome this financial gap.
• Increase working capital: due to the need of having to increase staff or the pace of production as a result of expanding the business.
• Purchase capital goods: the purchase of new equipment in order to expand into other markets or the increase in production is a long term investment.
• Build credit history: enables more financing options and better terms.
• Improve cash flow: refinancing (paying old debts with new loans) is a way to finance existing debt or to make advance payments on same; it helps to improve the cash flow.

Being sure of the reasons for taking out a loan is as important as knowing which is the most suitable type of loan. For example, if you expect demand to continue hiking for some time you should consider long-term loans. In other situations short-term loans will be more appropriate.

Knowing the reasons for requesting a loan is just as important as knowing what type of credit is the most adequate 

Big, medium, small, few employees, importers, exporters, with or without credit history: no two companies are alike or have the same financial needs. This is why we provide the following list presenting different financing alternatives and services.

Commercial banks

This is where the majority of SME business owners turn to. Some are huge multinationals; others are large but domestic, while others are small or niche banks.

Multinational banks

According to the Organization for Economic Co-operation and Development (OECD), multinational private banks represent the largest group of financial institutions in most of the countries in the region. They tend to be more highly-capitalized and offer a wider range of banking services. The disadvantage is that transactions are subject to strict risk analysis procedures such as credit ratings.

Domestic banks

Services offered are generally more limited but SMEs find it easier to make transactions because they are usually more flexible, offer more favorable terms and make quicker decisions. The disadvantage is that since they are not internationally recognized, foreign trade transactions can be more expensive. Development banks Provide medium to long term finance, generally with respect to projects that contribute to a country’s growth. Multilaterals have wider reach. They are usually a good source of financing but typically they do not lend to individual SMEs but rather direct their financing through governments and associated banking entities.

Export-Import Banks

Export-Import banks (EXIM) are an ideal financial resource. They receive support from governments, multilateral development banks and industrial associations to finance the export of products and services. They assume country and credit risks that private entities are unable to accept and they also provide guarantees and insurance for the purchase of goods and services by foreign buyers that are unwilling to accept the credit risk. They also serve in providing collateral required from SMEs in order to obtain financing from the most demanding commercial institutions.

Factoring

These entities purchase accounts receivables at a discount and their services can be used without having to worry about collateral requirements typically involved when dealing with commercial banks. The advantage is the speed with which businessmen receive the requested cash. However, the disadvantage is that if collection extends for a long period of time the costs will be high. According to the magazine Bloomberg Businessweek, a commission ranging from 2% to 5% is charged for the first 30 days after the account is payable. After this term it will be necessary to add the commission for each additional day.

Leasing

These companies assign assets such as commercial goods, machinery or vehicles, under a lease. This tool helps to free up capital into multiple rent payments rather than having to make one payment for the total amount of an important purchase.

Non-bank financial institutions

This category includes insurance companies, credit unions, pawnshops, currency exchange institutions and microfinance entities. In general they provide services related to banks such as investment, risk pools and market brokerage services. According to OECD many are government-sponsored to promote exports. The premium charged is normally linked to the perception of risk of the country where the goods are to be exported.

Credit unions

These institutions are comprised by groups of individuals with common interests. SMEs can easily obtain access to financing from credit unions of which they are members but the services offered are very limited. Notwithstanding, they are a good source of short-term loans.

Special government loans

Governments place significant importance on exports since they generate income and fuel national economies; this is why they develop programs and incentives to promote them. The funding is usually coursed through banks, making it worthwhile for companies to ask their banks about the availability of these loans.