The SMEs Optimistic, Pessimistic And Irresponsible About Cash Flow

The data last week was all about working capital for small businesses — how they access it, who borrows what and, in some cases, who isn’t paying it back on time. Our weekly roundup of the numbers examines the trends.

First of all, the latest statistics reveal where the gap exists in SMEs’ cash flow management. New findings from the World Economic Forum say there is $2 trillion that small businesses are looking to access but cannot get their hands on from traditional banks.

“Financing for SMEs is lacking although there is an ample amount of cash ready to get deployed,” said WEF Financial Inclusion Project Lead and Council Manager Michael Koenitzer in a statement last week announcing the results.

[bctt tweet=”Financing for SMEs is lacking though there is ample cash ready to get deployed.”]

That’s where the alternative lenders come in, of course, said Peer Stein, the director of finance and markets global practice at the World Bank Group. “If FinTech can provide levers to help them succeed, we should create the right environment to make this happen,” he said.

The WEF’s statements were timely considering the release of new research from SME financing firm SnapCap that took a look at how alternative lenders are filling in that $2 trillion gap, and for whom.

In a look at 14,000 online small business financing applications through the first half of this year, SnapCap found last week that nearly half of these funding requests (45 percent) are coming from home-based businesses.

Online retailers are the third-highest business segment in these applications, the researchers said, in part because these companies don’t often qualify for financing from traditional banks.

The company’s president, Hunter Stunzi, said in a statement announcing the results that banks simply aren’t cutting it when it comes to meeting the needs of these businesses.

“Given their current lending requirements and processing cycles, banks are not keeping pace with the latest shifts in the economy and the way small businesses operate today,” he said.

[bctt tweet=”Banks are not keeping pace with the latest shifts in the economy and how SMEs operate.”]

That doesn’t mean banks have ghosted SMEs, though. The Wall Street Journal reported last Monday (Oct. 26) that supply chain financing services are on the rise for traditional FIs and their small supplier businesses.

The report noted that the Federal Deposit Insurance Corp. recorded that just 20 percent of all commercial and industrial loans on the books for banks at the end of June were small loans of $1 million or less, the type of financing given to SMEs. That’s a record low, reports said. Supply chain financing is helping relieve some of the cash flow issues that SMEs experience because of this decline in traditional small-value lending.

So, what’s all this mean for the businesses struggling with their money levels?

That’s obviously a loaded question, but last week analysts unleashed figures for some groups of small business borrowers.

Research in the U.K., for instance, revealed that SME business outlook has weakened in the nation over the last six months. That’s the conclusion of Aon and its Small Business Change Index, published last week, which found that less than half (48 percent) of SMEs surveyed feel confident in the economy, down from 50 percent six months prior.

The data changes when broken down by segment, however — SMEs in the IT market are the most confident, while falls were recorded across finance, accounting, construction and media.

On the other hand, new stats from Dun & Bradstreet found that SMEs in Australia are getting paid faster and are witnessing healthier cash flows as a result. According to reports last week, payment times in Q3 2015 dropped across a range of industries compared to the same period in 2014, including wholesale, finance manufacturing and communications.

Over in the U.S., analysts took a look at the financial health of SMEs run by millennials. While these businesses are more actively borrowing, reports from Experian also found that millennial small business owners are also more frequently defaulting on their repayments.

According to the report, 17.4 percent of millennial business owners opened a commercial bank account in the last two years, and this segment has the highest delinquency rate of any other for repaying commercial credit card debt (3.6 percent were delinquent on repayments).

Interestingly, millennial SMEs held the lowest outstanding commercial loan balance of other generational small business owners.

“Considering millennials are now the nation’s largest living generation, they potentially could become the country’s most prolific small business owner population,” said Pete Bolin, director of consulting and analytics for Experian Business Information Services, in a statement last week. “With that said, it’s important to understand what drives this segment and how they manage their financial obligations.”

So, what can we conclude from all of this?

There is $2 trillion waiting to be borrowed by small businesses across the globe. Banks may be keeping their supply chain financing efforts, but as they pull back from small-value loans this year, alternative lenders can swoop in — especially for entrepreneurs, home-based businesses and online retailers.

Cash flow remains a problem for SMEs (no surprise there). While Australian businesses have enjoyed faster payment times this quarter, U.K. SMEs are less optimistic about the economy and may be more hesitant to borrow in the near future. Millennial SME owners in the U.S., on the other hand, are borrowing significantly — and struggling to repay those debts, too.