How Fintech Is Driving Financial Growth To SMEs To Survive From Pandemic?

Jul 29, 2021 - 11:50 AMAuthor - Kenneth Jackson


With 2020 being one of the most vigorously hurt years for the global economy, all thanks to Covid-19, the countries across the world are looking forward to improving things this year especially SMEs ie Small & Medium-sized Enterprises that have the worst-hit impacts of the pandemic. 

There is no doubt that they hold more than half of most countries’ GDP, SMEs have been adversely impacted by the global pandemic. Defined as independent firms with less than a given number of employees, SMEs are the principal driver of a country’s economy, creating employment, growth & innovation opportunities but they are particularly vulnerable as they struggle through reduced demand, disrupted supply chain, and aggravate lack of finance. They are financially fragile and survival in the competitive market is a big matter of concern for them, triggered by a financial crisis emerging from the unprecedented closure of businesses for an indefinite period across the world during the pandemic. 

Tackling Finance Is A Big Roadblock For SMEs To Get Success In The Global Trade

Though an overall financial crunch is complex to handle, the main worry is the lack of liquidity. More than half of SMEs are self-funded while only a few borrow from banks, formal institutions & legal sources. They face many challenges when it comes to applying for trade finance from traditional banks as the lending is more based on financial systems. Lenders have access to a plethora of positive & negative data on a credit report. Though the situation is improving, it is difficult to find sound credit scoring in emerging economies. Even if the SMEs present audited financial statements, tax reports, etc, the possibility of getting a loan approved remains low. Plus, Banks’ rules & regulations are too rigid while sanctioning a loan to small businesses as they usually don’t have any collateral to provide to the lender as a security in case of non-payment of the loan amount. Traditional lending is still a not-solved issue for small businesses with small balance sheets, leading to a lack of access to credit for executing international trade transactions.

Related Read: Trade Finance & SMEs - Reasons Why SMEs Opt For Trade Finance

This is where Fintech comes into the scenario.

How Fintech Is Helping SMEs?

In recent years, the growing popularity of fintech lenders is offering new models of lending which are faster, easier, affordable, and more transparent. Now, SMEs can share their data in exchange for access to credit to survive in the global trade. By adopting advanced analytics platforms and AI to assess transactional & alternative data like bank statements, fintech lenders are taking a deep insight into SMEs to help & guide them to establish creditworthiness, effective risk-evaluation, and better chances of loan approval according to their financing needs. 

Let’s read how fintech is driving financial growth to SMEs to recover from pandemic:

1. Enlarging Alternative Financing Options - Fintech is being proved as an efficient & more flexible alternative of financing for SMEs when they require capital/funds to run their business smoothly. Earlier, it was reported by around half of small business owners that they needed external funds for their business and usually, their financing requests get rejected by banks due to their risk-averse nature & collateral requirements. Here, the fintech industry has introduced several appealing alternative forms of financing for SMEs where they can opt for a personal loan, and many other trade finance instruments like Letters of Credit, Bank Guarantee, etc.

2. Advanced Financial Tools & Services - Fintech companies are enabling SMEs to take benefit from various advanced & latest innovative services such as:

   * Automated Accounting - A sound & thorough understanding of finances not only allows you to make better decisions for your business by controlling all your financial activities but also makes you capable of thinking about where to invest, or whether to take a loan, etc. But unfortunately half of SMEs don’t have a professional accountant to do these tasks. Here fintech bridges the gap by providing online software to SMEs enabling them to manage invoices, accounts payable, payroll, expenses, and much more especially when SMEs cannot afford to streamline their workflows by hiring an expert professional.

   * Easy Online Payment Processing - Additionally, many fintech apps can accept contactless payments, meaning SMEs can accept payment at the point of sale. So we can say that by expanding business activities to accept debit/credit cards, corporate payment cards & mobile wallet payments, SMEs can develop their brand online efficiently. Regardless of the type of business, they can process online payments from their smartphones. 
    * Data Sharing & Analysis - SMEs now can get their hands on a variety of tools to gather and analyze big data for making strategic decisions. Plus, data can also be integrated and shared among financial institutions and other leaders such as fintech firms.
   * App-Based Banking For Business Account - Not only customers, but many small businesses are also taking advantage of app-based banking that offers business accounts. They have lower charges and other additional features compared to traditional banks. Also, they can smoothly integrate with cloud accounting services and generate detailed reports to show business about expenses.

3. Ecommerce - Many other fintech solutions have made it easier for SMEs to run cost-effective online eCommerce sites. For example, Shopify, or BigCommerce allows small businesses to sell their products via social media channels, accept credit cards & many more. Not only this, but some small business owners are also adopting new forms of digital payments such as Bitcoins, a cryptocurrency where sellers don't have to pay fees.

4. Easy International Payments - Developments in the finance sector have also brought many valuable innovations to sending & receiving money abroad, benefitting importers & exporters. Now SMEs can link several currencies into one account and can easily send or receive payments in multiple currencies without holding on to numerous bank accounts. International payments are much easier now. 

Related Read: Top -5 Ways To Send Or Transfer Funds Internationally

5. Insurance & Retirement - Fintech startups are improving the traditional approaches of business insurance by providing SMEs with more convenient products. For example, easing the process of buying a policy by allowing SMEs to apply online, giving a boost to the popularity of online insurers. Plus, the products tend to be both affordable & customized as per SMEs needs. Apart from this, fintech companies are also reducing the costs of retirement plans for SMEs to make them easier to administer.

Now you know how fintech can be beneficial for SMEs to generate as well as manage finance for business operations. From managing cash flow to choosing a suitable retirement plan, fintech technology has covered it all. In recent years, the fintech industry’s growth has eliminated various roadblocks for SMEs ranging from time-consuming bank procedures to high costs for services like accounting. It is providing a plethora of benefits to SMEs to make finance workflows more efficient, save money and ensure a better customer experience.


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