BRIAN BENOIT
SMALL and medium-sized enterprises (SMEs) play a vital role in driving economic growth, yet many face significant challenges when accessing the financing needed for expansion.
Despite various initiatives designed to address these challenges, capital remains a primary barrier for many SMEs.
Let’s explore the key facts surrounding SME financing, focusing on the financial ecosystem, available funding options and emerging trends that shape the future of SME growth.
• 70 per cent of SMEs lack funding to expand
According to World Bank data, debt and equity financing access remains limited, particularly for smaller firms.
These companies often lack the collateral required by traditional lenders and their financial statements tend to be opaque, making it difficult for banks to assess their creditworthiness.
In developing markets, around 70 per cent of SMEs lack the necessary funding to expand and succeed.
The funding shortfall is estimated at US$5.2 trillion for formal micro, small and medium-sized enterprises (MSMEs) and US$2.9 trillion for informal ones.
This finance gap further underscores a pressing challenge that stifles the potential of SMEs to drive economic growth and innovation.
With regions like Latin America, the Caribbean and East Asia facing gaps of over US$1 trillion, SMEs in these areas struggle to access the credit needed to expand, innovate and create jobs.
This gap reflects systemic financial barriers, including high collateral requirements, limited credit history and risk aversion from traditional banks.
Closing this gap requires a multi-faceted approach, including enhanced trade finance, public-private partnerships, and the growing involvement of fintech to create more accessible and flexible financing solutions for SMEs, particularly in emerging markets.
• Debt financing still dominates SME landscape
For many SMEs, bank loans and credit unions remain the primary sources of financing, even though they often come with stringent terms and high interest rates.
In TT, commercial banks provide the majority of SME loans, though these loans represent a smaller share of GDP compared to higher-income countries.
SMEs typically have higher transaction costs and are perceived as riskier, which contributes to the relatively low loan penetration.
• The venture capital ecosystem is evolving
The venture capital landscape in TT has seen the involvement of key players like the Tobago House of Assembly's Venture Capital Equity Fund Ltd (VCEFL).
Other significant contributors include private investors, early-stage networks and government-backed initiatives such as the Venture Capital Incentive Programme, all aimed at supporting SMEs and fostering economic diversification. Despite this progress, the ecosystem faces challenges such as a limited pool of venture capitalists, investor risk aversion and the need for stronger entrepreneurial support networks.
• Financing across the SME lifecycle
As SMEs evolve from micro-enterprises into larger, more established firms, the
