Bridging The 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 can be reduced to a contract between the controllers of the business and the  various stakeholders, whereby they agree to manage and deal with money, assets, profits and business operations in a consistent manner.

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 being that in the former, there are assets ready to be securitised, whereas the latter is a future or potential asset to be realised. Unlike financiers, most business owners think and talk in terms of “potential realisable value”.

I am surprised that trust law has made little in roads into the world of corporate finance. It is particularly good at creating ring fences around these potential realisable assets and the money which have been raised for a particular project. I hope that by sharing this discussion, Yu and I will be able to get enough people who maybe interested to venture into this new frontier in corporate finance!

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