Whether you are a for-profit small- or medium-sized enterprise (SME) or a nonprofit organization, at some point you have likely come into contact with the various ways financing can aid your organization. Because the term “financing” can be used many different ways, let us start first with a definition for use in this toolkit. When we talk about financing, we are usually talking about it in one of two contexts:
Funding: a mechanism to bring cash into your organization to support operations. This can take the form of a grant, a loan, or an exchange in the ownership of your organization for cash.
Credit: a way to purchase goods, services, or equipment without paying for it immediately. Credit can take the form of a loan, a line of credit, or even a period of “grace” before you have to pay. Credit can be taken by businesses (e.g., to purchase raw materials on credit from a supplier) or by consumers (e.g., to purchase finished products such as a latrine or water filter).
Both forms of financing can have a tremendously positive impact on the success of an SME or social organization, and both forms can present challenges if not used wisely.