How Supply Chain Finance Bridges the Trade Finance Gap
The global financial crisis of 2008 led to a sharp increase in the cost of capital for small-to-medium enterprises (SMEs), as banks tightened lending standards and focused on large borrowers. This so-called "trade finance gap" has been a major challenge for SMEs ever since.
Without access to affordable capital, SMEs face recurring cash shortages that limit their ability to meet demand or even threaten ongoing viability. Working capital locked in the supply chain is a huge problem for small businesses. They often don't have the liquidity to cover their costs, which can lead to financial difficulties. In 2018, Taulia estimated that $14 trillion in working capital was locked up in global supply chains. Four years and one pandemic later, that number is projected to grow upwards of three times that original number.
To counter tight credit access in the supply chain, large corporate buyers have sought out innovative fintech solutions for supply chain finance (SCF). SCF platforms provide a reliable, cost-effective source of cash to SMEs by advancing payments from corporate buyers. This funding can make a vital difference for small businesses, enabling them to invest in growth and maintain liquidity.
Despite the potential benefits of SCF, many small businesses are still unaware of this financing option. As a result, the trade finance gap continues to impede the growth of SMEs around the world. If you're an SME owner looking for working capital, supply chain finance may be a good solution for you. Supply chain finance can help alleviate some of these problems by providing funding to small businesses. This can help them cover their costs and improve their liquidity.
Let's review the basics. Here's how supply chain finance can help small businesses in a number of ways:
- It can provide funding to cover costs.
- It can improve liquidity by providing funding for inventory.
- It can help with early payment discounts.
- It can reduce supply chain risk.
By understanding the trade finance gap and how supply chain finance can help, you can take steps to ensure your small business has the cash flow it needs to thrive. If you would like to learn more, get in touch! Contact us today at info@traderiverusa.com!