SME Funding Trends: Insights from North American Markets
June 23rd, 2023
4 min read
Small and medium-sized enterprises (SMEs) play a vital role in economic growth and innovation across North America. However, accessing adequate funding remains a challenge for many SMEs. In this blog, we will explore the latest funding trends in North American markets, shedding light on the evolving landscape of SME financing. By understanding these trends, entrepreneurs can gain valuable insights to navigate the funding landscape effectively.
Increased Government Support:
Governments across North America have recognized the importance of SMEs and their contribution to the economy. Consequently, they have been actively promoting funding initiatives. For example, the U.S. Small Business Administration (SBA) offers various loan programs, including the popular 7(a) loan program, which provides financial assistance to eligible SMEs (SBA, 2021). Similarly, the Canadian government provides funding through programs like the Business Development Bank of Canada (BDC), offering loans and advisory services to SMEs (BDC, 2021). Such initiatives highlight the growing commitment to supporting SMEs and stimulating economic growth.
The Rise in Alternative Financing:
While traditional bank loans remain a common funding source, alternative financing options have gained traction in recent years. Peer-to-peer lending platforms, such as LendingClub and Funding Circle, enable SMEs to secure loans directly from individual investors (Samson, 2020). Additionally, invoice financing and supply chain finance solutions have emerged as viable alternatives, allowing SMEs to access working capital by leveraging their outstanding invoices (Deloitte, 2021). These alternative financing avenues offer flexibility and faster access to capital, addressing the funding gap for SMEs.
Impact of Venture Capital:
Venture capital (VC) funding has become increasingly prominent in North American SME funding. Startups with high-growth potential often seek VC investments to fuel their expansion plans. In 2021, U.S. venture capital investments reached a record-breaking $156.2 billion, with sectors like technology, healthcare, and clean energy attracting significant funding (Pitchbook, 2022). VC funding provides not only capital but also strategic guidance and industry connections, which can propel SMEs toward rapid growth.
Crowdfunding has revolutionized the funding landscape for SMEs by allowing them to raise capital from a large pool of individual investors. Platforms like Kickstarter and Indiegogo have facilitated the launch of countless successful businesses. In 2020, crowdfunding platforms across North America alone raised roughly $74 billion in funding across various sectors (Statista, 2021). Crowdfunding not only provides financial support but also serves as a marketing tool, helping SMEs validate their ideas and build a customer base (Mollick, 2014).
Growing Importance of Impact Investing:
With a rising focus on sustainability and social impact, impact investing has gained momentum in North America. Impact investors seek to generate positive societal or environmental change alongside financial returns. This trend creates opportunities for socially conscious SMEs looking to align their business models with sustainable practices. Impact investors often provide patient capital, offering longer-term funding options to SMEs with a strong impact-oriented mission (GIIN, 2021). SMEs that prioritize environmental, social, and governance (ESG) factors can tap into this growing pool of impact investors.
The digital revolution has revolutionized the funding landscape for SMEs. Online platforms and financial technology (fintech) companies have emerged, providing innovative funding solutions. For example, online lending platforms - like Boundless - leverage technology to streamline the loan application process, enabling SMEs to access quick funding decisions and disbursement of funds.