New Approaches to SME and Entrepreneurship Financing

Broadening the Range of Instruments

image of New Approaches to SME and Entrepreneurship Financing

Bank lending is the most common source of external finance for many SMEs and entrepreneurs, yet has proven challenging to newer, innovative and fast growing companies, as well as to those undertaking important transitions in their activities or seeking to de-leverage and improve their capital structures.

This report maps a broad range of external financing techniques to address diverse needs in varying circumstances, including asset-based finance, alternative debt, hybrid instruments, and equity instruments. It further highlights key enabling factors for their development, discusses major market trends and obstacles to SME uptake, and suggests some key areas of policy action to overcome challenges to market development.


Alternative debt as a source of finance for SMEs

This chapter illustrates alternative forms of debt for SMEs, which appeal to investors in the capital market. The chapter covers “direct” tools for raising funds from investors in the capital market, such as corporate bonds, and “indirect” tools, such as securitised debt and covered bonds, which can be used by banks to transform SME loans in their balance sheets into liquid assets, and thus increase lending itself. The chapter provides details about the functioning of the different instruments, key enabling factors for their development, the profile of firms that are suited for corporate bonds, recent trends in alternative debt markets and policies to strengthen their development.



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