How Investment in Trade Finance Can Help SMEs Thrive?

Jan 24, 2023 - 12:45 PMAuthor - Emerio Banque


A healthy trading system depends on the availability of finance. Up to 80% of current Global Trade Finance is backed by credit insurance or other financing. However, there are sizable gaps in the available resources, making it difficult for many businesses to access the necessary financial tools. With sufficient trade finance, businesses can have the resources they need to trade and grow, taking advantage of opportunities for development and expansion.

Small and medium-sized businesses (SMEs) need help finding financing with favourable terms. This is especially concerning because SMEs constitute a significant force in trade, employment, and economic growth. According to research, SMEs encounter these obstacles in developed and developing nations, but the difficulties are most significant in lower-income countries.

Trade digitalization has no definition, but it typically entails the digital twining of supply chains, the dematerialization of documents, and the digital data exchange. It means adding an electronic or computerized layer to business processes.

A key distinction in the new reality is that digitalization also refers to using digital channels to assist SMEs in creating value. By doing away with paper-based transactions, SMEs can increase productivity and transparency while avoiding delays brought on by physical documents getting misplaced or destroyed along the way.

SME interactions with financial partners are one way they can boost their operational effectiveness. For instance, SMEs can use their banks' online banking platforms to digitally submit their application forms, saving time and money compared to submitting paper-based applications and visiting physical branches.

How Does Finance Help Small And Medium Enterprises?

1. Scalable Financing  

They need access to financing that could support their scalable growth. Trade financing provides adaptable, safe, and scalable cash flow management options to accommodate expanding business needs. Exporters can ship more goods and consequently increase productivity significantly by removing the high entry barriers that Small and medium enterprises typically encounter.

Factoring makes delivering goods and services to international customers easier by providing credit protection, working capital, and collection services. Unlike traditional bank lending programs, funding is based on the value of your verified invoices rather than your credit score, offering more flexible and adaptable financing options.

2. Rise in Cash Flow

Sellers must maintain lengthy working capital cycles when exporting goods. Additionally, delays of up to 90 days frequently occur between the arrival of your products and the payment's receipt. These delays frequently reduce the number of orders Small and Medium Enterprises can complete in time.

Such short-term cash flow problems are resolved by trade financing, which issues your payment in days rather than months. Instead of waiting for payment transactions to verify, you can increase your transaction flow and take charge of your trade cycle once the necessary credit arrangements are in place. Plus, they are capable of competing for better negotiation terms by being able to offer your clients longer payment terms.

3. Market Knowledge

You may not have much experience with foreign markets if you are a Small or Medium Enterprise. Experts in Trade Finance Services are familiar with each foreign market's specific compliance requirements. You will have access to services that promote turnover growth, such as currency regulation control, as well as other region-specific services. While this is happening, cutting-edge market insights and on-site assistance will assist you in setting up best business practices.

Banks have much control over SMEs' borrowing requirements, but they frequently need more versatile financing options that exporters require to achieve their growth goals. Your trade finance partner will work with you to develop specialized solutions specific to your business's requirements.

4. Assurance of Payment 

Exporters desire to be paid before sending out their shipments, while importers want to finish paying after receiving their goods. Trade financing fills the gap by advancing your payment or Letter of credit. When working with foreign buyers who go bankrupt, there is always a chance of suffering a financial loss. The risks of payment collection will be taken on by a trade financing intermediary that will provide non-recourse credit insurance.

To ensure that Small and medium enterprises' invoices are paid in full, financing that is based on your clients' credit, not anyone else's, restricts their maximum credit availability. Your business is shielded from possible market failures because the creditworthiness of your customers is monitored. With the highest level of financial security, your transactions will be safe, and your chance of success will be increased.

5. Information 

This is a factor in the limitations Small and Medium Enterprises face because determining their creditworthiness is a difficult task. It may be more challenging to establish credit than a larger company because they have less access to traditional funding sources like banks and other financial institutions, whose information is frequently used to create credit reports. 

Small and Medium enterprises also frequently lack access to fixed assets, like property or buildings, which banks typically require as collateral to guarantee loans. Instead, moving assets are the primary source of financing for them. It is necessary to find alternatives to conventional collateral-based lending and use collateral registries to promote adequate legal and institutional protections.

Strengthening the financial transaction infrastructure, including the laws, rules, and organizations that create, register, and enforce collateral and insolvency, can help reduce financing barriers for Small and Medium Enterprises.

The bank credit financing gap with both large and small businesses decreases in economies with sufficient creditor protections, and credit is granted under more favourable terms when it is done so. However, there are few real-world instructions on implementing financial infrastructure upgrades.


Small and Medium Enterprises can overcome the difficulties of international sales by having access to efficient financing options. By Trade finance instruments boosting short-term cash flow, trade financing assists small and midsized businesses in achieving their growth objectives. 

Scalable financing gives you the flexibility to have more power over your trade cycle. Trade financing from a global trade finance company can offer the most practical solutions for breaking into new markets if you are considering expanding your international business relationships.


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