Small Business Financial Assistance

Small business financial assistance is a major component of the financing market all across the globe. As more and more small businesses start their operations all across the globe, the small business financial assistance provided by the lenders help them to promote and advance their businesses.

According to a study by an independent agency in the United States of America, about 75 percent of the businesses that are in the country are small businesses. During the recession of the later part of the year 2008, small businesses are the worst hit. Along with the credit crunch, small businesses find it difficult to obtain the required credit to sustain and grow their business.

Small business financial assistance is provided by banks, financial institutions and other credit sanctioning agencies across this world. There are three types of small business financial assistance provided to small businesses by these financial institutions. They include lending based on collateral or security provided by the small businesses, lending based on viability and lending based on information. Lending based on collateral or security is a lending concept in which small businesses are given loans against the assets owned by them as the collateral or the security. Lending based on viability is basically lending which is based on the venture capital invested by venture capitalist in the small businesses. Lending based on information is lending which is based on future cash flows, financial statements, and historical financial information.

Once the terms and conditions of the financial assistance to the small businesses is determined, the required credit is provided to the small businesses by different methods such as bank overdrafts, bank loans, equity financing, assets based financing, issuing corporate bonds, issuing equity bonds and leasing arrangements, hire purchase arrangements, factoring and invoice discounting. Bank overdrafts are essentially an overdraft account opened by the lender in favor of the loan borrower. Whenever the small businesses require credit, the credit can be obtained through the overdraft account. Bank loans are of two types, namely secured and unsecured loans. Secured loans are loans which are sanctioned with a security or collateral. Unsecured loans are loans without any security or collateral.

Loans are disbursed to small businesses based on their credit score and prior credit history. Equity financing is infusing fresh funds into the company by capital investments. In return for the funds, equity stake is provided to provider of the funds. Assets based financing is nothing but lending that is provided based on the assets owned by the small businesses. An extensive asset check process is carried out before the loan is sanctioned. Upon successful completion of the asset check and credit check process, the loans are disbursed to the borrower. Issuing corporate and equity bonds are another source of small business financial assistance through the capital markets. As the small businesses which establish their businesses across the world is sure to increase the coming years, the small business financial assistance availed by the small businesses is sure to see a substantial increase in numbers in the years to come.