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In the middle of the worst recession to hit the world for almost a century, small business owners would have to be out of their minds to consider opening up new markets abroad...wouldn’t they?
For one thing, where would they find the funding? Governments around the world are anxious to end their emergency Covid loans and furlough schemes; the same goes for banks after they lent record-breaking sums in 2020.
If SMEs can’t count on accessing future funding, surely it makes sense to use any money they can raise on keeping the business going, rather than making a leap that would be risky even if the world’s economy were booming?
In fact, there are several compelling reasons why the safety-first approach is not just undesirable, but deeply damaging to SMEs’ prospects of growth—and even to their survival.
In business as in life, you’ve got to use your resources wisely. Unfortunately, it seems businesses around the world have failed to put this unprecedented public and private sector lending to good use. In the UK, for example, it’s projected that one in ten businesses that received government Covid loans and furlough funding cannot make their repayments, leaving the UK treasury with a £22 billion “black hole”.
Meanwhile, there are signs that the private sector money taps won’t continue to gush as they did before. In the US, small business loan approvals are already at half the level they were before the pandemic. Having weathered the disasters of 2020, it now seems that SMEs face a perfect storm. And that would certainly be the case if traditional banks were the only source of capital.
Happily for SMEs, the fintech revolution of recent years gives them a huge range of alternative finance providers to choose from. These range from equity crowdfunding sites like Crowdcube or Companisto, peer-to-peer (P2P) lending platforms, and even invoice trading firms which enable firms to free up cash flow by selling their outstanding invoices.
Meanwhile, we’re also seeing the emergence of a new financial services subsector comprising providers that help businesses with their invoicing and cashflow, such as Xero and Serrala, banking services like Lili and Lance that are aimed squarely at sole traders or freelancers, and fintechs like Mambu that serve the burgeoning alternative lending industry with scalable loan management technology.
In reality, then, there’s no shortage of funding available for SMEs. But that doesn’t answer the question of why it makes sense to use this funding to expand overseas.
Most businesses want to open up new markets, but is it the right time to think of doing so? To answer that, consider two of the most famous maxims from two of the richest men in history: Baron Rothschild’s advice that "the time to buy is when there's blood in the streets”, and Warren Buffett’s rule to be “fearful when others are greedy, and greedy when others are fearful.”
These are the most fearful times in living memory. Small businesses that can summon the courage to open up operations abroad will steal a march, not just over their SME competitors but even multinationals who are retreating and retrenching. But there’s an even more important reason why international expansion makes such good sense today.
The pandemic has had a devastating impact on worldwide supply chains, not least because so many suppliers have been unable to pay invoices because they are committed to repaying bank and government loans. Meanwhile, lockdowns have been particularly tough on small businesses, with footfall and revenues plummeting as customers stay at home. Opening up new markets and finding new customers and suppliers around the world isn’t just a case of opportunity, but survival.
Until recently, however, one almost insurmountable obstacle stood in SMEs’ way: the cost and complexity of sending money abroad. In the last few years, however, a new breed of fintechs has emerged which are creating payments channels between a network of world banks. The result is that businesses of any size can now transfer money internationally as easily as in their home country.
As new fintechs develop these relationships - not just with banks, but with regulators and other financial stakeholders - they are smoothing the path of international payments for everybody. Just as mobile apps transformed the consumer banking experience, small businesses can now take advantage of easy-to-use e-wallets which enable them to hold money in any local currency, and transact with businesses, banks and payment institutions anywhere in the world for a fraction of the cost compared to traditional methods of money transfer.
Small businesses are the backbone of the world economy, but they’ve suffered enormously over the last 18 months. Thanks to new funding streams and easy, affordable international payments, expanding overseas no longer looks crazy. Instead, it could be the most rational decision a business ever makes.
