Where can a small business apply for a loan? Almost every enterprise in its activity will encounter a moment when it will need external financing. However, while the largest corporations have no problem raising funds in the stock and bond markets, and large companies can usually apply for a bank loan, small and medium-sized enterprises usually do not have this option. Why is this state of affairs and how can a small entrepreneur cope with difficulties in obtaining funds for development?
Why are banks so reluctant to support smaller companies?
At the outset, it is worth explaining why regulated financial institutions are so reluctant to loans to companies with a small scale of operations and a short history. Small entrepreneurs who cannot provide security in the form of a mortgage on real estate or even a lien on an inventory are seen as risky and uncertain borrowers In addition, granting low-value loans to companies requires much more work – verification of the borrower, reviewing his financial history, assessing the profitability of the proposed distribution of the funds granted and subsequent monitoring of loan repayment. The regulations on reserves and capital adequacy in force at banks are also not conducive to financing small enterprises – they reward assets that are considered safe, such as home loans for individuals, while unsecured loans for small and new companies are treated as the most risky.
- https://www.planit.com.pl/jakie-szkolenia-bhp-musza-przejsc-pracownicy/
- https://www.wdw.com.pl/zakupy-w-sklepie-online
- https://www.bankowe.net.pl/jak-ustawic-meble-w-sklepie-spozywczym/
Public aid for small and medium-sized enterprises
In the face of the unmet need for financing by the private sector, this function is performed in Poland with varying degrees of success. There are a number of public institutions that offer loans to companies, such as Bank Gospodarstwa Krajowego or the Polish Development Fund. Funds from European Union programs such as the European Social Fund and its sub-program Knowledge Education Development also often finance the provision of guarantees, subsidies, grants and loans to companies. Often, non-governmental organizations (NGOs) participate in the allocation of funds – often this is done by dividing funds into regions and sub-regions corresponding to a specific territory of the country. Therefore, it is worth visiting the websites of these and other institutions to find out what projects currently being implemented can support the development of our enterprises.
Non-bank loan companies
In addition to regulated financial institutions, such as commercial and cooperative banks and Spółdzielcze Kasy Oszczędnościowo-Kredytowe (SKOK), loans for companies are also offered by a number of private, unregulated loan companies. Such financing can be obtained both from companies specializing in low-value loans for the public, the so-called payday loans, as well as those focused primarily on entrepreneurs. The advantage of such financing are much lower requirements compared to banks and credit unions – they can often be obtained even when they are newly established, are just starting their operations and do not have any company assets. However, its disadvantage is the often high interest rate and award costs. Before signing the contract, it is worth getting acquainted with the so-called.
Another disadvantage of non-bank loan companies is the security they require. Even if we wisely take care of private property, operating in the form of a limited liability company, joint stock company or limited partnership (or a combination of these solutions, such as a very popular limited liability company limited partnership), lenders often require a surety of a loan for companies by the management board or shareholders. One should not forget about the sleepy members of the management boards of limited liability companies, Article 299 of the Commercial Companies Code, according to which they may be liable for the company’s debts if enforcement of its property proves ineffective.
Many enterprises of this type reserve that they only grant loans to companies conducted in the form of sole proprietorship that is most unfavorable for the borrower.
Alternative forms of financing – bonds and promissory note
The introduction mentioned large corporations that finance their investments with the issue of bonds. However, this option is also available to small and medium-sized companies, provided that they are joint stock companies or limited liability companies . If we intend to propose the purchase of bonds to a group of no more than 149 potential investors, we are not affected by costly restrictions excluding small businessmen from the regulated securities market. Another security that may turn out to be a more advantageous alternative to a loan for companies is a promissory note. The way of debt enforcement that is more favorable for the creditor and the ease of its transfer (called endorsement in the bill of exchange law) may help us find a private investor.
