Nordea Report: SMEs Face Growth Financing Challenges
A new analysis by Nordea Bank Abp highlights that Small and Medium-sized Enterprises (SMEs) face significant challenges in financing growth, showing lower returns and less efficient working capital management compared to larger companies.
Nordea Bank Abp's latest analysis reveals that Small and Medium-sized Enterprises (SMEs) encounter greater difficulties in financing their expansion compared to larger corporations. The report, building on Nordea's 'Working Capital Report 2020', examines the hurdles SMEs face in making investments and securing capital.
A key finding is that publicly traded SMEs, excluding the smallest category, exhibit growth rates comparable to larger firms but receive less support from external financing such as bank loans. Consequently, the majority of SMEs must rely on their internally generated cash flow or equity injections from owners to fund their growth.
Due to lower market capitalizations and less efficient working capital utilization, SMEs yield lower returns. The report suggests that this scarcity of capital may impede the growth of many companies. Solutions proposed include receivables financing, which can accelerate cash flow by unlocking capital tied up in customer invoices.
For SMEs involved in international trade, opportunities also exist to secure necessary capital through export credit guarantees from state-owned export credit agencies (ECAs). The risk coverage provided by these guarantees enables banks to offer SMEs options like invoice discounting and overdraft facilities.