Investments in small and medium-sized enterprises differ from lending for the following reasons:
- Purpose of investment: A financial institution will only lend money; investments can be real estate, securities, property rights.
- Degree of risk: loans and interest should be repaid regardless of the profitability of the project. The invested capital will be repaid and will be collected only if the project is profitable.
- Profitability: the bank's profit is established in advance, the investor's profit from a successful project is equivalent to the risk he bears.
Speaking about the role of small and medium-sized enterprises, we must emphasize that this is not an economic aspect. And its role is steadily growing in today's dynamic life.
Small and medium-sized enterprises are organically included in the economic structure of the social sector in a competitive environment. While in the past they were created as a result of individual desire to start their own business, since the experience of developed countries, nowadays, often in order to make a certain kind of production, with the market of creating a small business, which was started by a large company to give them the opportunity to establish close ties. Some small and medium-sized enterprises are included in large industrial parks through systems of contracts and subcontracts, but also through franchises. Suppliers - while recent large enterprises have become customers of small and medium-sized enterprises.
In particular, the role of small and medium-sized enterprises is reflected in their development:
- job creation;
- Introduction of new products and services to the market;
- meeting the needs of large corporations;
- Provision of specialized products and services to the population;
The creation of new jobs is the most important factor contributing to the development of small and medium-sized enterprises that provide for the livelihood of the majority of the population and stabilize society. Thus, more than 7 million small businesses in the United States provide more than 100 million jobs.
Another important aspect of small business is the introduction of new products and services. The productivity of small businesses in this area has affected the production of safe razors, electronic watches, helicopters, stainless steel, copiers, others. For example, in the United States, small and medium-sized enterprises produce more than 60% of all services, more than 50% of all products, and also implement almost half of all ideas and innovations.
Finally, many small and medium-sized enterprises exist to meet the special needs of customers. For example, it is natural that small companies are created to repair vintage watches and antiques.
Therefore, small business provides the necessary mobility in the market conditions, creates a deep specialization and extensive cooperation of production, without which its high efficiency is unthinkable.
The way of an estimation of efficiency of the investments, developed world practice, is used for an estimation of efficiency both the real investment project, ad financial investments and a choice of the investment purpose.
Many novice investors and companies invest in small and medium-sized enterprises. Many young entrepreneurs are unable to take credit for small businesses, they have to resort to the help of investors. Even if a loan is granted to an entrepreneur, it is likely to have a very high-interest rate.
Many large companies often invest in small and medium-sized enterprises, as well as in the development of new projects. When this small business starts to earn, large companies will not stop. If small and medium enterprises do not justify themselves, losses are minimized. Besides, large enterprises can provide premises, equipment, and many other things. Private investors are much more risky than large companies. If small and medium-sized enterprises do not generate a passive income, the private investor may go bankrupt or lose a large amount of money.
Decisions on fund management are an important step in the management of any company. To use the attracted funds efficiently and maximize the return on invested capital, a thorough analysis of future income and expenses related to the implementation of the investment project under consideration is required.
The task of the financial manager is to select such a project and its method of implementation to ensure the flow of funds with the highest present value compared to the cost of required investments.