The importance of banking & financial services to SMEs

sme finance

If you have a business with enough capital and liquidity, do you still need banking or other financial services?

The answer to this question is simple: yes! Regardless of the type of business you have, banks and other financial services providers are going to play some role in modern-day business transactions.

What Banking and Financial Services Provide

Obviously, banking and financial services are important to small and medium-sized enterprises. For one, they provide financing for businesses to start, sustain, or expand. There are many SME business loans designed to help SMEs start and thrive. Without banks and financial services providers, the business community will be totally dominated only by those who have the capital. This is definitely something modern societies cannot allow.

Moreover, banks and financial services providers are important to SMEs to facilitate financial transactions. Obviously, not everyone uses cash to pay for transactions. Some use checks. Others use online payment systems. There are also those that pay through credit cards and special setups for transferring funds. These cannot be possible without banks and financial services providers.

Microfinance for SMEs

It’s not only the banks, though, that provide financial services SMEs need. As finance expert Sharone Perlstein asserts, FinTech and microfinance companies can also help and empower individuals and businesses, especially those who are “unbanked”. Not everyone qualifies for a bank loan. There are many requirements that prevent certain business owners or businesses from availing of traditional financial services. This is where microfinance and quick personal loans offered online enters the picture. To serve those who cannot be served by banks because of their location or qualification, there are companies and government initiatives aimed at providing financial services specifically designed to help those that are unbanked or unlikely to be granted access to traditional financial services. Microfinance fills the gap in the financial services sector banks are unable to fill.

Perlstein advocates for microfinance as he believes that the lack of access to financial services prevents billions of people in different parts of the world from achieving economic development. As a former investment consultant on Wall Street, Perlstein saw how access to financial services can make a big difference. He is optimistic that microfinance will benefit more people especially as it adapts to changes in the finance industry and advancements in technology. Microfinance is the next best thing to getting access to conventional banking and financial services. He also sees the possibility of microfinance integrating new technologies such as cryptocurrency to serve more people.

Businesses, regardless of size and type, would have to rely on or deal with banks and financial services companies one way or another. It’s important to acknowledge and take advantage of the role these companies play. For those that are unable to avail of banking and traditional financial services, there’s the option to turn to microfinance services.