Finance Gap For SMEs

I recall a conversation between myself and my friend @yu-iwata, who is the business owner of Bridge Rock Consulting here in Singapore. He is an expert in corporate finance and helps businesses with various financial needs. So I asked Yu (that is how I address I call him), why is getting access to loans and finance the #1 problem for SMEs around the world? Yu’s answer was both instructive and interesting.

He explained that most financiers actually do not care too much about your business. They are only looking at 2 things: SECURITY and RETURNS, in terms of do I know that the money raised will not go towards supporting the business owner’s personal lifestyle? One of the bridges to that gap is corporate governance.

Corporate governance is essentially a contract between business controllers and various stakeholders. They agree to manage money, assets, profits, and business operations consistently.

The next bridge involves the use of Trust Instruments. Financiers believe that if the business owners have their “skin in the game” in terms of some form of security, this will ensure compliance and mitigate their risk in case things turn out bad.

Conventional financiers will only accept securities that are “ready and realisable”. They are reluctant to accept securities that have a “potential realisable value”. The difference is that the former has assets ready for securitisation, while the latter involves future or potential assets. Unlike financiers, most business owners think and talk in terms of “potential realisable value”.

I am surprised that trust law has made little progress in corporate finance. It excels at creating ring fences around potential assets and the money raised for specific projects. I hope this discussion inspires enough people to join Yu and me in exploring this new frontier in corporate finance!