The Importance of Finance for

SMEs
The need for finance in SMEs might arise on four
occasions.
 The first, and most common is the need for start-up
capital to help in the establishment of a new business.
 The requirement to finance business expansion, i.e. for
purchase of new buildings, plant, or machinery; to
finance working capital by holding more stocks/work in
progress and trade debtors. Finance might also be
needed for taking over other existing businesses as an
expansion strategy.

Fundamentals of Entrepreneurship All Rights Reserved

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 The Importance of Finance for SMEs (cont.)

The need for finance in SMEs might arise on four

occasions.
 The third occasion is when ‘venture capital' is
required, particularly to finance an innovation. This
type of capital, also known as 'risk capital‘.
 The last occasion is to adjust the existing financial
structure of the business, e.g. changes in the
proportion of equity to debt or the proportion of long
to short-term debt.

Fundamentals of Entrepreneurship All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2013 1– 6