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Investment Vehicles for Small and Medium Enterprises

Investment Vehicles for Small and Medium Enterprises. What is an SME?. On average, defined as a business having 5-100 employees. SMEs drive the economy. In the United States, over 90% of all businesses are classified as small. Areas without strong SMEs do not have strong economies.

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Investment Vehicles for Small and Medium Enterprises

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  1. Investment Vehicles for Small and Medium Enterprises

  2. What is an SME? • On average, defined as a business having 5-100 employees. • SMEs drive the economy. In the United States, over 90% of all businesses are classified as small. • Areas without strong SMEs do not have strong economies.

  3. Barriers to Cleaner Practices • Lack of Information • Lack of Available Financing • Lack of Interest

  4. Barriers to Financing • Seen as an unprofitable sector • Seen as high risk • Associated environmental problems seen as even more risky

  5. Investment Vehicles • Existing Banks, Credit Unions, Microfinance Institutions • De Novo Financial Institutions • Regulated Entities • Traditional Loan Funds • Risk Capital Funds • Guarantee Funds

  6. Existing Institutions • Pros • No start-up costs • Localized approach, may have branch system • Strengthens existing institutions • Cons • Subject to bank management’s attitude • Institution may discontinue program after credit line or TA dries up

  7. New Formal Institutions • High start-up costs, human resource intensive • Subject to regulations • Mission-driven banks and credit unions are a growing industry in the West • Can have large impact through a single institution

  8. Loan Funds • Traditional forms of financing • Can be very small or very large (ranges from $500,000 to 30 million in US) • Lean and flexible, small target market • Capital is generated from governments, foundations, individuals, and businesses

  9. Risk Capital Funds • Mezzanine, quasi-equity, or equity investments • Much more risky, but higher returns • Focused on high-growth industries • Usually cover more geography than traditional loan fund

  10. Guarantee Funds • Not direct lending, but requires same expertise • Helps institutions mitigate risk or perceived risk • A centralized process, but can be easily streamlined and cover huge geographies.

  11. ShoreBank Pacific • First Eco-Bank in the United States, founded in 1997 • Covers Pacific Northwest, particularly the rural areas • Employs a bank scientist to help underwrite loans • Includes environmental mission score in overall decision-process

  12. Case Examples • Capital Divers, Inc. • Eco-tourism, water protection • Environmental Engineering • Innovative technology • Stormwater Management, Inc. • Uses natural media to filter road runoff • Organicare, Inc. • Natural fertilizers stay in the soil • Clean Water • NGO water assn providing access to potable water

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