Who would have thought three months ago, at the start of a new decade, that we would be in a position where 25% of the world’s population is on lockdown and the Dow Jones experienced its biggest single-day drop ever. Credit markets are also becoming increasingly volatile; while high credit graded companies still have sufficient access to liquidity, credit market dislocation is disproportionately affecting small businesses. As Governments across the globe rally with rescue packages worth trillions, we should focus our attention on the plight of small businesses.
According to research carried about by JP Morgan Chase Institute, the median number of cash buffer days across all small businesses is only 27. To compound the challenge, another report published last year found that one out of three small businesses did not apply for financing either because they thought they would be denied, the cost of credit was too high, or the application process was too complicated. In this time of crisis, standing by small businesses is vital to help economies come through this turbulence without significant damage. These businesses need financing to be available to them, inexpensive and easy to obtain.
While we should commend the actions of global Governments, historically we know that securing stimulus funds can be time-consuming, rife with delays and require cumbersome administration. Alternative sources of funding can be problematic too. Mid-sized banks, those with local SME relationships, and factoring companies are facing their own liquidity issues as risk becomes harder to manage. The current crisis cannot be directly compared to the financial crisis of 2008, but what we can see is a number of parallels where investors become more risk-averse, shunning high-yield assets to those which have lower risk despite the lower yield. As a result, those in most need of financing, small businesses, have very few options.
As I continue to speak to clients, time and time again I hear their desire to help small businesses get access to financing. Why is this? In addition to helping the communities they serve; they are looking for ways to improve the resilience of their supply chain which is facing an unprecedented level of disruption globally. Optional early payment programs like supply chain finance and dynamic discounting can make all the difference. Small businesses have immediate access to financing, allowing them to take action as soon as the need is identified.
At Taulia we strive to ensure companies have access to the working capital they need to finance their business by providing the choice for when and how to get paid. Despite the many challenges ahead for small businesses and the broader economy, together we will reach a brighter future.