Thus the availability of bank finance for SMEs is usually limited and, even when credit is available, it is usually at a higher cost and on unfavorable terms – for example, through high cost overdraft facilities rather than through term loans. For these reasons, Governments which are committed to SME development focus on making funding available on reasonable terms.
One challenge they and central banks face is to encourage the traditional financial institutions, particularly the commercial banks, to lend to SMEs. Invariably they try to do this through lo an guarantee schemes.