Many large-scale enterprises supporting the economic growth of the nation. However, small and medium-sized enterprises are the backbone of the economy in every country. SMEs are giving jobs to 50% of the population in such countries. It is not as easy as it seems to run a small enterprise.
The business owner has to face many challenges and hardships to run and even establish such a company. One of the challenges is the lack of financial support. Blockchain companies are considered as large companies. And blockchain technology is opening new pathways for many small and medium enterprises.
What Are The Most Common Challenges Faced By SMEs?
Such companies are termed as the backbone of financial growth in every other country. But still, these companies are regularly facing multiple challenges in terms of scaling and maintaining their businesses. Some of the challenges are:
- Getting loans – Where large companies are getting continuous support from banks and financial institutions, small companies are struggling to make the ends meet. For a new small company, it is extremely difficult to get the capital to start a business. According to a report, some new or running medium-sized enterprises shut down their business in the first three years. The reason for their shutdown is the lack of funding.
- Lack of technology – This is one of the common challenges for medium and small enterprises. These companies have no or limited information about the latest technologies. The reason behind the lack of technological advancements is the lack of knowledge and manpower. Therefore, it does not let them grow. Adopting new technology to a business can increase the profits of a business overnight. It has been proven that if a business has implemented the latest technology advancements, that business can turn into a large-scale company in no time.
- Other finances – Small and medium-sized enterprises rely on trade finance. This type of Financing is popular but at the same time, it is also difficult to obtain it. The process is difficult and requires too many formalities. This is the reason why many businesses avoid getting trade finance. Another type of financing for such companies is a peer to peer lending system. Some small-scale companies are also moving forward towards crowdfunding. Crowdfunding is limited to technological startups. Thus, apart from bank loans, there is a limited form of alternative financing for small and medium-sized enterprises.
- Issues in the cash flow – As large as 40% of companies have reported cash flow issues in their company. It starts right from the establishment of a new company and sometimes bothers even when the business is running for a few years. Continuous cash flow is the main issue for many companies. Regular cash flow is needed to perform many essential operations within the company. For example purchasing raw materials, producing the products, paying employees, or any other expenses.
How Blockchain Can Help Small And Medium-sized Enterprises?
Blockchain represents a highly advanced alternative to traditional funding and trade financings system. apart from providing financial facilities, blockchain can also solve other problems within these companies. For instance, secure transactions and more!
- Smart contracts – Creating contracts is the most common practice in every business whether it is small or large. When a normal contract is replaced with a smart contract using blockchain technology, it advances the business as a whole. A smart contract can be executed and enforced automatically. Therefore, it can save a lot of time that otherwise gets wasted in handling manual contracts. It can also be used as an invoice for any other financing document.
- Trade financing – While trade finance is difficult to obtain, blockchain trade financing can become a hand holding help for small and medium-sized enterprises.
- Supply chain financing – If a company is into manufacturing, it can be difficult to handle supply chain let alone supply chain financing. But blockchain technology has made it possible. All the transactions are noted in real-time which makes supply chain processes move smoothly. The transparent supply chain transactions help quick supply chain invoice financing solutions.
- Collateral – Blockchain technology has transformed funding systems for small enterprises. With the help of digital technology, blockchain can help to expand lending practices. In the blockchain industry, everything is digital in place of traditional manual processes. Now technological and other companies can raise funds through equity. It has reduced paperwork and offered automated funding.
- Online security – Many technological and other companies are doing their business through online medium. Some businesses need online identity verification and blockchain has revolutionized the identity verification process. When the identity is verified through decentralized technology such as blockchain, the chances of identity theft and fraud becomes nil. Not to mention, the identity verification process is also fast as compared to the traditional documentation process.