Why small businesses continue to struggle financially

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Despite cultural and economic differences, small businesses from all over the world face similar challenges and share the same concerns, ranging from uncertainty about future cash flow to accessing affordable finance.

There are several reasons as to why small businesses struggle financially -- dealing with late payments from customers, lack of foresight into their future cash flow, and minimal support from those with financial experience.

Following the 2008 global financial crisis, small business lending fell to a low of £38 billion a year, leaving a $5.2 trillion global SME funding gap.

Financial institutions lack the proper foresight to support their small business customers proactively. Without timely access to necessary funding, and improper support from trusted financial partners, a small business’ potential to fail increases considerably.

Small businesses are crucial to economies both for wealth creation and for the people they employ. Productivity growth is essential for promoting long-term economic growth and higher living standards. It is therefore vital that small businesses are given the best chance of succeeding.

In the UK, 97% of businesses are small-to-medium enterprises (SMEs) who deal with the same issues, a lack of foresight into their cash flow, and financial partners who are unequipped to help with funding. The funding gap in the UK currently stands at £22 billion.

In Singapore, 99% of the country’s 220,1000 businesses are SMEs. They employ two-thirds of Singapore’s workforce and contributes to 49% of GDP. Yet, they do not get the support they need to deal with, for example, late payments from their customers. Eight out of ten small businesses in Singapore do not qualify for financing such as bank loans.

This is happening all over the world, and we have seen it firsthand. As a small business, we have experienced it ourselves, and we have seen and discussed it at length through our work in Australia, the Netherlands, and the CEE.

This year, at the Open Banking World Congress, we presented a conversation we had with Dan, the owner of a florist in London. Dan tells us: “You constantly feel as though you have to battle accountants, insurance people, or the bankers. All three seem to make it really hard for a small business to get anywhere.

 

So how do we solve a problem of this scale?

If data-driven solutions were used, financial institutions would be able to better understand an SME’s needs, increasing funding opportunities for SMEs, and increasing revenue opportunities for themselves, making it a win-win situation. Furthermore, regulators and fintechs should be looking to solve the root issue and not fixate on solving the surface problem (late payments is one example).

We can already see that innovative fintechs and forward-thinking banks are taking the time and resources to solve this burgeoning issue.


Founded in 2014, Fractal is fundamentally redefining Financial Services (FS) for Small-Medium-Enterprises (SMEs). The platform combines data, AI and automation to enable FS providers to better service their SMEs customers, and in turn, empower businesses with frictionless access to the financial products they need to grow and prosper.

Fractal is a UK based, API-led platform focused on redefining banking for SMEs -- the backbone and lifeblood of the global economy.

Fractal’s mission is to remove barriers to SME financing, and increase liquidity in the global SME financing market.

You can find out more by contacting us here.