Financing sources for SMEs: an overview

A short guide on the sources of liquidity for SMEs - Part 1

The liquidity shortage is an endemic issue for most Italian companies, but the lockdown imposed to curb the Coronavirus epidemic has triggered an acute crisis.

In this guide, we provide an overview of the traditional and innovative funding sources to which companies can draw on to obtain liquidity quickly.

Before analyzing the possible solutions, we recommend you to check your current economic and financial situation. From which point of view is the company suffering the most?
Verifying it now, allows you to evaluate the strengths and weaknesses of the company's financial management and to avoid unsustainable choices. S-peek can help you easily identify where to intervene. Within the reports FLASH and Extended12M, a traffic light indicator shows whether the company is balanced in terms of solvency, liquidity, and profitability

The Liquidity Decree

Talking about liquidity sources, let's first clarify some doubts about the measures introduced by the so-called Liquidity Decree. Who can access the funds allocated by the Italian Government? And above all, who is entitled to the 25 thousand euros financing?

The financing is provided through a regular bank loan backed by a public guarantee. To access it, you need to submit a regular loan application to your bank. For companies with up to 499 employees and individuals engaged in business activities, the Liquidity Decree provides a 100% guarantee on loans equivalent to 25% of the company's revenues and not exceeding 25 thousand euros. For higher amounts, up to a maximum of 5 million, the public guarantee can cover up to 90% of the loan. However, if the financing is also backed by a credit consortium, the guarantee can reach a 100% coverage rate. 

Invoice trading

Thanks to the Liquidity Decree, companies can easily access bank credit. However, for companies already vulnerable from a solvency point of view, an additional loan could cause over-indebtedness. In this case, invoice trading can be a more suitable solution.

Through invoice trading web platforms, companies can sell their invoices not yet due to qualified investors and immediately receive a down payment of 90% of the credit value. When the invoice is paid, the investor collects the amount and pays the balance to the seller. The commission fee is generally between 1% and 3%. 

In most cases, companies receive funding in less than 3 days.

Besides, invoice trading operations also reduce the net  debt and improve the economic and financial balance of the company. Unlike bank loans, advances on invoices are not  recorded under the company's liabilities. For the same reason, invoice trading transactions are not reported to the Central Credit Register of the Bank of Italy.

Invoice financing is one of the most effective and rapid solutions to bring liquidity to companies in a short time. In Italy, there are 9 invoice trading platforms: 

Invoice trading is a valid solution for companies with numerous outstanding receivable against their clients. In the second part of this guide, we will see other sources of financing to which companies can draw on to quickly obtain liquidity. 

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