A lending revolution: bringing retail SMEs a new funding model that truly meets their needs

A LENDING REVOLUTION:

bringing retail SMEs a new funding model that truly meets their needs

SMEs often feel neglected by their money makers. As the international economy’s mainstay, they employ as much as 60% of the world’s workforce and account for 99% of all EU companies. Despite their undoubted financial and social significance, they are routinely left behind in national programmes, access to technology and, above all, funding.

This is particularly so in retail SMEs. Cashflow shortages are holding them back and with little to no liquidity, their ability to compete with tech titans such as Amazon, Alibaba and others, who will never find it hard to access money at scale, is mightily impaired.

E-commerce retail and wholesale operations are finding the financing ecosystem especially tough. Goods sellers worldwide must have fast and easy access to cash to keep their inventories full, especially when dealing with disruption. It is the best way to deal with recent global supply problems – Brexit aftershocks, the pandemic, the war in Ukraine, shipping container and worker shortages. And if they go to the wall, the major retail barons take their place and retain their dominance forever. That’s bad for the market, bad for the economy and bad for the consumer.

If any market is ripe for scrutiny and maximised efficiencies, it is funding for SMEs. And the traditional financing model simply does not fit their needs. They face silent discrimination by virtue of the inflexible rules and procedures of the traditional banking system.

Despite their massive investments in IT over the last decade, major banks remain one-trick ponies. “Show us your historical profits and our computer will tell you if you are eligible for financing or not”, they say. But that’s not how enterprising companies work in today’s fast-moving world. Retailers and wholesalers produce massive amounts of data each day that can be analysed in real-time, giving a financing institution much more insight into their actual health and needs, especially as organisations develop.

This makes banks’ almost universal failure to examine the wealth of numbers and details baffling - thwarting and impeding SMEs’ growth and denying the banks themselves the opportunities to forge sound business partnerships.

The global pandemic saw huge growth in retail and e-commerce. It was common to see small one-man bands’ accelerated growth into middle-size companies. However, such staggering expansion is too fast for many businesses to scale up properly. This process includes attracting and retaining top talent; installing and upgrading appropriate tech systems; learning from competitors who have successfully grown; and identifying barriers to expansion.

None of these are especially easy – and they usually demand a lot of time and money. Time and again, business owners tell us the same story: “We live day to day, basically holding the company together with sticky tape and praying it will survive”.

What these operations need are sophisticated inventory forecasting lenders. These providers can predict clients’ future

sales based on their historical data with high accuracy, then deliver the appropriate funding when needed via disruptive financing partners.

Such pioneering partnerships understand the need for cash in retail SMEs’ day-today operations. They live their clients’ struggles from an informed, very close perspective and give them easy access to funding.

The workings of such an arrangement are simple. The inventory forecaster’s AI predicts clients’ future sales and values the perfect amount of inventory that needs to be ordered from suppliers to match consumer demand. This places a very exact, very business-associated price tag on their financing needs.

With the client’s consent, it shares this data with the funder. They plug the numbers into their learning algorithms and, within minutes, create a one-click bespoke offer, which is delivered instantly to the client. If they agree, they receive cash within 24 hours, which is how financing really should work for anyone.

Disruptive data-driven startups are fast-emerging and are powering a funding revolution for small-to-medium-sized companies. For example, Irish revenue-based financing and growth platform for online merchants, Wyflyer, is already an established data-driven financing startup, with more than half a billion USD in e-commerce business funding.

Unsurprisingly, it saw an opportunity in inventory planning and the associated financing and started its own inventory management services earlier this year.

Data-driven fast and easy access to cash will become the norm. It is tailored, unbiased and low risk for the financing institution if the data source is rich. Access to data-driven funding is inextricably linked to access to super-IT, which brings us to a concluding point.

Most SMEs, whether retail or otherwise, are still Excel managed. This creates an unsustainable technological divide between the small and the super-powerful conglomerates. All the major data silos, the best AIs, the top-rated developers at Amazon, say, create a hostile environment that simply gives little or no chance for smaller companies to compete.

But the so-called “democratisation of technology” process is quickly changing that landscape. AI and other cutting-edge technologies need no longer be a luxury for any enterprise. Accessible, easy-to-set-up SaaS tools create a bristling armoury of powerful opportunities for our ‘local heroes’ - at an affordable price.

Small companies have access to world-leading technology like never before. This creates a doubly-positive effect. Not only can they enjoy the benefits of data-centred algorithms immediately, but further machine-to-machine communication will also multiply the gains as SaaS startups become interconnected with APIs. Such closely linked environments create cases for information-driven financing and these will surely become the new norm for SMEs.

In fact, the process has already begun, with companies in leading economies now securing sizeable equity and credit awards to enable and expand their offerings.

Tomas Formanek, CEO and Founder, Inventoro.

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