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Financing strategies for small and medium-sized enterprises in Latin America and the Caribbean


In Latin America and the Caribbean (LAC), micro, small, and medium-sized enterprises (MSMEs) represent 99.5% of the business fabric, 60% of the economically active population, and around 25% of the Gross Domestic Product (GDP). However, MSMEs face serious obstacles in obtaining credit, which limits their development and competitiveness.


By: Jose Martín Rodriguez

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Published by ConnectAmericas

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The main difficulties that small and medium enterprises in Latin America face in accessing credit are:


·      Macroeconomic environment: 70% of banks indicated that macroeconomic conditions are the determining factor in granting credit.

·      Transaction costs

·      Lack of credit history: Many financing applications do not succeed due to a lack of credit history.

·      Impacts of digital transformation: The effects of digitalization are becoming more common in the financial landscape of Latin America and the Caribbean.

·      Emerging projects: Startups, especially those focused on technology and innovation, often encounter barriers when seeking financing. This leads to many potentially viable ideas not being realized due to a lack of resources to implement them.


Here are some strategies that could help improve your access to credit:


1.    Formalize your company: Formalization can open doors to financial services. Easing tax regulations can reduce the cost of operating formally.

2.    Maintain a positive credit history: Fulfill your financial obligations promptly. A favorable credit history can improve your chances of being approved for a loan.

3.    Employ new technologies: Innovative technologies can contribute to improving access to credit in markets, offering the opportunity for economic expansion and raising living standards.

4.    Explore alternative financing options: Consider various financing alternatives such as SME loans, peer-to-peer lending, and crowdfunding.

5.    Prepare for the credit application process: Make sure you have all the necessary documents to apply for a loan. These typically include financial statements, business plans, and collateral.


It is crucial to seek personalized financial advice before making any decisions, as each situation is different.


The main sources of financing for small and medium enterprises (SMEs) in Latin America and the Caribbean include:

·      Suppliers: Financing provided by suppliers allows you to acquire the necessary raw materials for production processes.

·      SME credit: Stands out as an exceptional and widely used financing option. This type of credit is available to individuals or entities engaged in business activities, providing the capital or resources needed to expand their business.

·      Bank credit lines: This type of financing provides you with a sum of money over a specific period.

·      Crowdfunding: A financing method that, through a digital platform, brings together a crowd of individuals willing to contribute a specific amount of money.

·      Factoring: A mechanism that provides financing by transferring your collection rights (derived from invoices or accounts receivable) to a financial institution.

·      Leasing: A form of financing for movable and immovable assets, where the owner of the assets grants exclusive rights to another party, with the option to purchase included in a contract clause.


These are just some of the available alternatives. The most suitable financing option will be determined based on the specific needs of your business, and it is important to note that requirements will vary depending on the financial institution.


In conclusion:


SMEs in Latin America and the Caribbean are a key sector for economic and social development, but they face significant challenges in accessing credit. The obstacles to SME financing are related to macroeconomic, operational, regulatory, and technological factors. SMEs can improve their access to credit through strategies such as maintaining a good credit history, formalizing their activities, adopting innovative technologies, exploring alternative sources of financing, and adequately preparing for the credit application process. SMEs can access various sources of financing, such as suppliers, SME credit, bank credit lines, crowdfunding, factoring, and leasing. Each option has its advantages and disadvantages, so the most appropriate choice should be carefully evaluated.

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