In most SMEs, financing is discussed after the order has already been signed.
The sequence is surprisingly common: need identified, specifications prepared, offers compared, supplier selected, investment approved. Only then is the finance department or fiduciary adviser asked how it will all be paid for. Financing appears as settlement rather than design.
By then, the most important design option has already been lost. Cash-flow effect, balance-sheet effect, term, residual-value risk and risk allocation all depend on the financing structure, which can then only adapt to a fixed decision rather than help shape it.
This has consequences beyond the individual case. Anyone who considers financing only at the end will almost automatically use the familiar structure. In most companies, that structure has never been reviewed. It simply evolved over time: this is how the father did it, this is what the main bank knows, and this is how it appears in the last financial statements.
In an environment where banks assess applications more selectively, attach greater weight to collateral and take longer to decide, this sequence is risky. [Evidence: current survey of SME access to credit] A commercially sound investment may fail for lack of financing even though a different structure would have worked. It also regularly causes companies to consume their entire credit line for an asset that could have been financed differently, leaving no room for the next project.
The alternative is unspectacular but effective: review financing options in parallel with procurement. What happens to our liquidity over the next 24 months? What does this investment mean for our credit capacity on the next project? Which structure fits the asset’s usage cycle? Which risks do we want to carry ourselves?
That requires a few weeks’ lead time and changes the decision surprisingly often, rarely in amount but frequently in structure. It also moves the topic to where it belongs: the executive agenda, not the settlement process.
A food producer considers leasing, a bank loan and self-financing in parallel before ordering a new packaging line.
A question for executive teams: at what point in your investment process does financing enter the discussion, and who introduces it?