Governments have a critical role to play in promoting the growth of SMEs. This then raises the fundamental question; what is the best way a government can support SMEs? Small and Medium-sized Enterprises (SMEs) contribute significantly to the economy by creating jobs and also generating revenue for the government. As such, their role cannot be underestimated and that is why the government should promote SMEs. This article will discuss how the government can support SMEs grow.
What are the Ways in which a Government can Support SMEs?
By promoting small businesses to grow, governments also benefits since businesses generate revenues through taxes. As such, this is how governments can promote small businesses.
1. Improve Access to Business Loans under Favorable Terms
Many people have excellent business ideas, but they cannot realize them due to lack of startup capital. Borrowing from financial institutions is risky since their motive is to make profits and as such, they charge high-interest rates. As such, one of the ways how governments can help SMEs is providing them with to access business startup funds at low-interest rates.
The repayment terms should be favorable so that businesses can be given enough time to start generating profits. Need to provide collateral to access business startup funds should be scrapped.
Read more: Challenges facing small businesses in Kenya.
2. Increase Business Funding
Governments need to establish a kitty to cater for business startups. Most businesses are self-funded and most entrepreneurs fail to raise enough startup capital. Those who manage to raise the startup capital get it from friends and relatives or through crowdfunding. Those that cannot raise the capital fail to venture into business.
Most sources of business funding have strict bureaucratic processes and stiff penalties. Failure to repay a loan can lead to business auction. If governments can avail better and safer sources of business funding, business persons will be at ease to access startup capital.
Read more: Best crowdfunding platforms for startups.
3. Provide Tax Breaks to Small Businesses
The government should reduce taxes for businesses that are just starting. High taxes hurt a business's success. It is because they spend a lot on taxes leaving aside other operational costs for business growth. When small businesses are left with enough finances, they can expand and employ more people.
In most countries, business licenses and town council permits are usually expensive. Governments should consider reducing such expenses so that businesses are left with enough finances to run their operations. It becomes easy for small businesses to manage their operational costs.
4. Step up Business Training
The other way the government can support SMEs is through provision of entrepreneurial skills that are essential for their success. Governments should increase entrepreneurial training for potential entrepreneurs without skills. This will ensure that businesses have trained workers for the growth of businesses.
Governments should increase grants to higher education institutions so that they can employ trained personnel and admit more business students. Other initiatives like community entrepreneurship training will help the youth to start businesses.
5. Step Up Innovation through Business Incubators
Governments should establish more business incubators to increase access to business resources. Incubators provide entrepreneurs with training, experience and seed capital. Business incubators lead to more entrepreneurial discoveries, thereby improving the efficiency of businesses.
Through innovation, there is the creation of more opportunities. There is also efficiency through the discovery of new ways of doing things. It is for this reason that developed countries have many business opportunities.
6. Reduce Business Startup Compliance Requirements
Different countries have different compliance requirements and bureaucratic processes. Most of these compliance requirements are good, but they hurt businesses that are just starting. There should be a balance between business regulation and business sustainability.
Removing some of the unnecessary bureaucratic processes will encourage potential business persons to venture into businesses.
7. Improve Infrastructure
The other way government can support is SMEs is through creation of infrastructure. Businesses need to transport raw materials to factories and finished good to their customers. Without proper infrastructure, it can be challenging to supply raw materials and finished goods. Governments need to maintain roads, rails, airports and ships to ensure an easy movement of goods and services.
With developed infrastructure, it easy to operate a business since suppliers can easily transport goods to factories. Most agricultural products are perishable and need faster transportation to markets. Also, finished goods can reach customers on time.
Read more: Sources of business ideas.
8. Ease Business Registration Process
In many countries, the process of registering a business is usually complicated and can take several weeks. The process attracts high registration fees that discourage businesses from opening. Automating the business registration process and reducing registration fees would help entrepreneurs venture into business.
Summary of How Can Government Support SMEs
The government plays a critical role in the economy of any country through the policies it makes. The policies that the government makes should create a good business environment that encourages entrepreneurs to start businesses. Besides, the government should also ensure that there is peace and security in the country so that businesses can thrive.