SMBs Seek Working Capital From New Sources

Legacy banks are famously risk-averse, and the pandemic hasn’t improved that. Tightening of the credit markets during lockdowns up to now has beset small and medium-sized businesses (SMBs) seeking capital from traditional sources that lost their appetite for risk.

For thousands of SMBs, cash flow shortages and the credit crunch will end in a closure. FinTechs and payment services providers (PSPS) are among the forces innovating to keep SMBs open.

“SMBs have been facing economic turbulence stemming from the COVID-19 pandemic for months, and government-issued stay-at-home and social distancing orders drastically limited many businesses’ revenues,” according to the new Payments Powering the Platform Economy Report done in collaboration with Payoneer.

“A joint study between social media giant Facebook, the Organisation for Economic Co-operation and Development (OECD) and the World Bank found that 26 percent of SMBs around the world closed between January and May, with some countries’ SMBs experiencing closure rates of more than 50 percent. Tourism and hospitality businesses have been hit especially hard because the health crisis has limited travel,” per the new report.

The new Payments Powering the Platform Economy Report contains over 20 pages of insights and guidance to help struggling SMBs make it to the other side of this pandemic.

Rise Of The FinTech Lenders

Observing the restrictions on lending that typify pandemic-era finance, Iain McNicoll, vice president, regional head of Americas, SMB at Payoneer, recently told PYMNTS, “What we’ve seen in the past couple of years is a rise of FinTech companies stepping in and reshaping SMB lending, helping to bridge the gap that traditional bank lenders couldn’t fill.”

To mitigate new risks associated with SMBs, new lenders are using new approaches.

“A popular option is to limit the amounts offered and/or shorten the payback period. While the demand is clearly there, for lenders, a conservative approach is most prudent,” he said. “This approach also protects the SMB from taking on too much risk during this uncertain period.”

Payoneer’s Express Working Capital product is designed for this type of lending, “to give an immediate injection of cash with shorter pay-back terms,” McNicoll said.

“This, along with our Grow Working Capital product, has allowed us to offer SMBs the needed capital to not only make it through challenging times but to also capitalize on the many new opportunities for growth that have been created in the market.”

Financing Against Business Failure 

Proving useful context around SMBs and their current plight, the new report notes, “30.7 million small businesses operate across the country and account for 64 percent of new jobs. They represent 99.9 percent of all businesses and 46.3 percent of all jobs in the U.S.”

Even so, U.S. Bureau of Labor Statistics confirm that 20 percent fail in their first year and about 50 percent make it to five years. Just 35 percent of SMBs make it past their first decade.

“The reasons for these failures are varied, but many involve cash flow issues as 29 percent report they ran out of money and 18 percent cite pricing or supply cost problems,” the new report states, while noting that “Seventy percent of SMBs are adding new digital capabilities or enhancing existing ones to continue their operations, but firms often require financing to implement these innovations.”