Why should you invest in small businesses?

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One of the engines of growth for the Mexican economy are small and medium companies. In the last few months, the decrease of capital and the lack of investment are the main factors that hinder its expansion and growth.

One of the challenges this year is to promote investments in SMEs and ventures to increase their life expectancy and generate more value in the country's economy.

With the pandemic effects, 86.6% of SMEs have been affected by their development, according to the National Institute of Statistics and Geography. he situation generated lower liquidity and demand. A situation that forced 51.2% of small companies to reduce their operations in recent months.

Types of investment for small companies

The lack of investment for SMEs has made it difficult to continue with their projects. A problem that impacts, in general, on the economy, due SMEs generates 61% of employment in Latin America, according to data from the Organization for Economic Cooperation and Development (OCDE by its acronym in Spanish).

“A new development dynamic that allows economic growth faster and continues for SMEs”, the organization says in its analysis. To obtain resources that allow them to continue their operation, SMEs have turned to their suppliers as an alternative to obtain the resources and inputs to stay afloat.

Government programs

Another type of investment with access are funds and financing programs that offer government entities and international banks. An example is Inter-American Development Bank (IDB) that has as objective the participation of entrepreneurs in local economies.

With this mechanism small companies have access to capital through NGOs, local institutions and investment funds aimed at this type of projects and ventures. In Mexico there are tools such as the National Financing Program for microentrepreneurs and the National Entrepreneur Fund that focus their resources to encourage the development of SMEs.

Traditional banking

There are also traditional options such as those offered by banking for SMEs.Although at this point they must meet certain requirements that not all companies can meet.
According to Ibero-American Institute of the Securities Market (IIMV) , 20% of SMEs manage to access this type of financing. Situation that opens the way to new investment alternatives such as the stock market, fintech and venture capital funds.

Fintech, stocks and venture capital

With technological innovations in financial services, new financing alternatives have arisen such as crowdfunding or fintech that offer resources to SMEs for their development.

There is also the opportunity of obtaining investment through the stock market through shares of companies. For this, small SMEs must comply with guidelines to enter this market as their institutionalization.

Additionally, investment in SMEs through venture capital is a model used by investors to inject capital in high development potential companies. The last type of investment has the participation of investors through venture capital funds, in order to get returns of these small companies and ventures.

Reasons to invest

Undoubtedly, one of the reasons to promote SMEs investment is the value it represents to the country. As employment generator and impulse in the economy activity. Also, as private investor you find advantage in injecting your capital in SMEs and ventures:

  • Investment return: injecting capital in SMEs during its expansion phase can bring better returns in the long-term. The SMEs' necessity to obtain capital to grow is translated as profits for the investor.
  • Greater opportunity to grow: is a common thought that big companies started as SMEs. When you invest in a small company you can offer capital and advice. In the growth process you can obtain high returns.
  • Innovative potential: being at a crucial stage to accelerate its development. With the investments is seeking business consolidation which makes it easier to innovate on their processes to achieve the goals.

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One of the engines of growth for the Mexican economy are small and medium-sized companies, but why should you invest in them?

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