Trade Finance and Trade Finance Solutions- Importance for SMEs

A report from the International Chamber of Commerce highlights that Small Business Enterprises, or SMEs, represent about 95% of the total global economy. That is almost the complete scenario, but with a catch. 

Despite being so dominantly present, SMEs have to cope with very limited access to financial assistance services and other strategies that could minimize the risks involved, a couple of things among many that are important for the long-term growth of any enterprise. This is where international trade finance facilitates abroad transactions for small, medium, and large companies. 

There are many trade finance solutions that make it easy for SMEs to raise working capital for entering new markets. This is because it is the SMEs that find it the most challenging to secure funds for expansion. 

International trade finance providers offer a lot of alternative options for financing, specifically designed to meet the requirements of SMEs.

This is why in this post, we are going to try and understand why international trade finance solutions as well as the finance itself, are so important for SMEs.

1- The Risk of Payments is Reduced

Importers and exporters are the two involved parties when it comes to international trade. The risks involved in international trade are significantly higher than domestic trade. While the importer will struggle in coming to terms if the goods will reach the right condition, exporters also have the issue of receiving timely payments. 

There are a lot of factors that could bring about a delay in payments or even losses for that matter- 

-Exchange rates because of fluctuations in currency.

-Difficulty in meeting dynamic market conditions. 

-Political events that impact foreign economies. 

-History of payment and credit ratings of the importer.

Under such circumstances, international trade finance providers take care of these risks in payment by providing a Letter of Credit. It acts as a form of guarantee that payment will be made as soon as the required shipping documentation is complete.

2- Banks Often Don’t Care Much About SMEs

A large majority of the banks do not finance SMEs without a convincing level of security. The line of credit of an SME determines this level of security. At times it becomes difficult to manage the line of credit on the required grounds while also staying aligned with growth objectives. 

In anticipating growth, SMEs can hugely benefit from the financing options available to facilitate this growth. To add to it, longer durations of payment leave more working capital with the buyers to keep up with their order fulfillment. 

3- Challenges with International Regulations

Global regulations are one of the biggest barriers to SMEs, where ensuring compliance with them is a pretty tough job for them. This is because the regulatory requirements can pose a huge difference from one country to another. Given how complex it all becomes, a majority of these lenders place their trust in large companies and consolidated enterprises. 

Trade finance providers offer options like supply chain financing and export factoring as feasible alternatives. They have experts in their team to make sure that everything stays compliant and legal. 

Finally

If you are an SME looking to bring the right kind of balance to your business, then trade digital solutions from Trade Technologies are the perfect match for you. Also, you get a dedicated team that takes care to customize the solutions aligned with the kind of requirements you have.