Cryptocurrencies and the 'crowd' are small businesses' bank alternative
A major trend shaping the small-business landscape is the rise in cryptocurrency, which can provide alternative means for a variety of cross-border financial transactions.
What began in 2009 with the invention of bitcoin as the first digital asset designed to work as a medium for exchange, has evolved into a global phenomenon. New types of cryptocurrencies are sprouting every day and being used in different ways, including to facilitate cross-border small-business payments and investing.
Fundstrat, a leading financial market strategy and research firm, recently issued a report on digital currency stating, “Bitcoin is an under-owned asset, with a lot of characteristics very similar to gold that will ultimately make it attractive as an alternate currency.”
Cryptocurrency is ideal for cross-border transactions in several ways. In addition to being secure and permanent, cryptocurrency transactions allow borrowers and lenders to sidestep time spent working through a bank, as well as converting from one currency to another. For many investors, the speed and convenience of cryptocurrency-based transactions presents an opportunity to magnify gains.
SMEs can also benefit from advances in crowdfunding. Niche types of crowdfunding platforms emerging, such as those focused on equity crowdfunding as well as those geared toward specific sectors, allowing investors with deep domain knowledge in certain areas to invest with confidence. Beyond SMEs, this presents significant opportunities for investors to bypass what has traditionally been the VC’s niche. For SMEs, the scale of crowdfunding platforms will enable them to reach more investors more quickly, expediting the entire process of accessing capital from a broader range of individuals and entities.
Along with crowdfunding and peer-to-peer lending, cryptocurrency can improve access to both payments and credit for SMEs. That combats a key constraint to SME growth, largely because most small businesses don’t have an established, solid record of revenues to show to lenders. According to one recent survey conducted by the U.S. National Small Business Association, 27% claimed they haven’t been able to receive the funding they needed.
For those one in four businesses, the most frequent primary impact that a lack of funding had was preventing them from growing their business. Even for those that do get funding, the timeliness of that funding is often a problem. Promising startups in developing countries face an even more daunting challenge in gaining access to capital, given limited alternatives to draw upon (personal and family savings) and the absence of financial innovation.
Fortunately, the culmination of several trends has the power to paint a brighter picture for SMEs worldwide. Over the next several years, the interplay of alternative lending, crowdfunding and cryptocurrency is poised to reshape the SME lending landscape, presenting new opportunities for SMEs and investors, as well as established and developing economies around the world.