Final answer:
Entrepreneurship is linked with SMEs because they embody the necessary innovation and risk involved in starting new ventures. Entrepreneurs found new firms for potential rewards and market opportunities, and governments promote start-ups for economic health. Start-ups raise funds through private investors, venture capitalists, and sometimes IPOs, while bonds are instruments for established entities to borrow funds.
Step-by-step explanation:
Entrepreneurship and SMEs
Entrepreneurship is most often associated with Small and Medium-sized Enterprises (SMEs) because these entities represent the innovation and risk-taking necessary to start and grow new businesses. While large firms can be entrepreneurial, the agility and need to disrupt or create markets are often found among smaller players. Despite high failure rates for new startups, entrepreneurs continue to found new firms due to the high potential rewards, personal satisfaction, and the possibility of filling unmet market needs. Moreover, governments are interested in promoting start-ups as they are crucial for economic diversification, innovation, job creation, and stimulating the business cycle.
Raising Financial Capital for Start-ups
The most common ways for start-up firms to raise financial capital include funding from private investors, venture capitalists, bank loans, and for some, Initial Public Offerings (IPOs). Firms cannot solely rely on their own profits for expansion because new ventures often require more capital than can be generated internally, especially during early growth stages. Banks tend to lend more readily to established firms due to their proven track record and clearer financial history.
Bonds
A bond is a fixed income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental). A bond can be thought of as an I.O.U. between the lender and borrower that includes the details of the loan and its payments. Bonds provide borrowed funds to large entities to finance a variety of projects and activities.