Ways blockchain is solving the credit gap for SMEs

Small and medium-sized enterprises are the backbone of economies worldwide. They play an essential role in the global economy and social development, with more than 50% of the world’s population working in these enterprises. In the Netherlands, for example, almost 90% of Dutch businesses are SMEs, and they account for 60% of the Dutch economy’s revenue. Blockchain innovation for SMEs is opening up new models of finance.

However, SMEs face a lot of challenges in their operations. In this article, I will review five significant challenges confronting SMEs namely: difficulty in securing loans, and trade finance, cash flow issues, limited alternative financing, and personal identity concerns. We will then discuss some solutions provided by blockchain technology.

Though many people relate blockchain to big companies, the technology also opens new prospects to SMEs in various sectors to solve existing issues and empower them to optimize their operations and create new business models. Until recently, many hindrances caused slower adoption of blockchain and other distributed ledger technologies by SMEs. But that is slowly changing.

Current challenges facing SMEs

Several challenges hinder SMEs despite their status as the lifeblood of world economies. They encounter difficulties in sourcing finances, scaling their businesses, processing payments, and adding other supplementary services that are both necessary to operate and expand.

Bank Loans

Securing a loan to start or expand a business is one of the major problems facing SMEs. More than 30% of SME businesses close in the first three years of operation because of inadequate funding.

Since the banking crisis of 2008, financial institutions are naturally risk-averse, hence their tolerance for SME lending is relatively low. The World Bank report of 2018 estimated that 70% of SMEs are unable to access essential credit. While the global demand for SME credit stands at $2.38 trillion, the truth is, just a portion (about 15%) of businesses actually receive loans from banks.

Trade finance

The second challenge, especially for globally operating SMEs, is access to trade finance. Trade financing, just like many types of credit provision, is a primary ingredient of the success of SMEs, but this ingredient is not always easy to secure. SMEs encounter numerous hurdles in their funding efforts, especially when it comes to accessing traditional finance services.

The industry still relies heavily on paper and uses outdated processes and procedures. Most trade finance operations are, as a result, still time-consuming, bureaucratic, and a bit expensive for most SMEs.

Cash flow

Failure to cash in capital continues to cause adverse impacts to SMEs, creating growth and cash flow problems. In fact, 40% of SMEs reported cash flow challenges in the last two years. Companies need steady cash flows to purchase raw materials, run production processes, pay workers, and cover other business costs. For smaller businesses, a late payment can be the difference between success and failure.

Limited Alternative Financing

Nowadays, SMEs often go for alternative forms of financing to secure capital and sort out cash flow challenges. In the past decade, peer-to-peer lending platforms emerged as an alternative to bank loans. Additionally, crowdfunding has also appeared to fill the gap in the market, though tech startups are the primary targets of crowdfunding. However, SMEs from other industries cannot access alternative financing.

Personal Identity

Personal identity and data management are the main concerns for e-commerce businesses as they rely on centralized platforms to store user data and most of their communications and payments. Such parties are vulnerable to hacking, and fraudsters can steal user data.

Blockchain as a Solution to these Challenges

Blockchain technology can solve SME challenges in the areas of funding and trade finance. So far most uses for blockchain center on finance. It can also transform other inefficient sectors. Safe and secure data transactions and smart contracts may improve their supply chains and improve customer satisfaction by automating their services.

Expansion into new markets

Blockchain can be a way for SMEs that want to venture overseas in their quest for trade finance. Trade finance products are more efficient because of blockchain’s transparency and consensus mechanisms that replace multiple requests of verification and auditing.

A study carried out by the World Economic Forum, and Bain & Company shows that blockchain could play a crucial role in minimizing the global trade finance gap, supporting a trade that otherwise could not happen. The second finding is that the effects could be significant in emerging economies and for SMEs that will embrace the technology beyond developed markets and establishments.

The Asian Development Bank states that currently, the global trade finance gap stands at $1.5 trillion, and project it to increase to $2.4 trillion by 2025. However, findings from another study show that the gap could be condensed by $1 trillion with the effective use of blockchain technology.

Supply chain finance

Blockchain can also solve the issue of tracking supply chain finance. Many businesses are currently creating open account solutions. But, due to the problem of tracing the supply chain system, financing is limited to only a few companies. Since blockchain is more flexible with data compared to existing digital systems, it opens up the prospect of this level of financing.

On a blockchain, both sellers and buyers can access all transactional information in real-time. Each step of the supply chain system is time-stamped and verified by all members, implying that it is accurate and immutable. This extra level of visibility also depicts that parties will enjoy more invoice financing solutions.

Smart contracts

One of the primary aspects of blockchain technology is the ability to provide SMEs with smart contracts that define the terms and conditions of agreements, just like traditional agreements do. Besides, smart contracts automatically implement and enforce all the pre-agreed terms and conditions without the help of third parties. Smart contracts can replace many labor-intensive and costly business operations with cost-effective costs.

The major benefits of blockchain emerge from smart contracts, single digital records for customs clearance. Smart contracts can represent an invoice, or any other financial document, and be utilized as collateral to secure a loan. They can help alleviate credit risk, lower expenses, and eliminate barriers to trade. To avoid the initial development expenses of developing on Ethereum, Espeo blockchain makes it easier to build and launch smart contracts.


Blockchain can reinvent SME funding. The P2P lending sector, which the traditional banking system has locked outside, can be revived blockchain technology by digitizing what was once a manual process.

Through disintermediation, blockchain technology is useful and faster for SMEs- not only technology companies- to raise funds through equity. The eradication of these obstacles minimizes the requirement for complicated paperwork. Besides, the automated nature of the system eliminates commissions, exclusions, excessive brokerage charges of selling shares, and other overheads.

Identity management

Another field where blockchain could be a gamer changer in the field of online identity verification. Many SMEs carry out their operations online, increasing the demand for enhanced online security. Decentralized identity through blockchain can reduce the threat of identity theft and fraud. These systems bring a more robust and reliable form of identification of people without the need for third parties. Decentralized identity management also has extra benefits, such as the reliability of the verification process and quick operational speeds. In this way, SMEs will speed up their operations and make them more reliable.

Blockchain for SMEs

Several collaborative blockchain companies, like Hyperledger and Ethereum, have mushroomed to raise the adoption of blockchain across various industries and inform SMEs of the technology’s potential.

Their primary objective is to enable businesses to create customized blockchains that solve particular problems instead of letting enterprises solve issues on their own. In the last five years, we have experienced a rise in platform-based platforms focused on SMEs.

We.Trade platform

Nordea has created a blockchain-based platform designed to make it easier for SMEs to trade with other firms in Europe. All Nordea SME customers can access the we.trade platform. Trading is regulated through There is a set of rules meant to secure the process. By enabling more businesses to enjoy more effective access to trade financing and credit across Europe, the Nordea SME customers will expand their activities by reaching out to untapped markets and creating new trading partnerships.


Karma is a P2P firm that is fully decentralized and designed to give SMEs access to alternative funding. The platform leverage the power of blockchain to enable business clients to invest in any SME. It offers its users a wide range of investment opportunities. For instance, it allows investors to lend to SMEs anywhere all over the world.

Blockchain identity platforms

Already, several blockchain firms are exploiting blockchain’s identity tools. The decentralized and security aspect of blockchain to offer better and more transparent identification features is an excellent way for businesses to identify themselves and access certified data in their e-commerce sites.

Instead of purchasing expensive, centralized server architecture or ”paying hefty fees” to firms like Amazon Web Services or Google, SMEs might instead decide to rent custom-sized decentralized hosting space from a blockchain company. Renting brings high data integrity and a more effective cost plan.


It is easy to understand why an increasing number of SMEs are willing to invest more in blockchain technology, just from the potential of blockchain technology. With decentralization and related features like smart contracts, SMEs may expect to experience a total transformation of how they operate.

However, blockchain is still at its infancy stage. The mass adoption of this technology by SMEs has not yet begun, and widespread adoption calls for more time. For blockchain companies to realize this dream, they have to rally SMEs behind this revolutionary technology and drive customers toward blockchain solutions. Mass adoption requires trust.

For SMEs to fully realize the benefits of blockchain, they must begin trusting the process. SME trust will, in turn, prove to the world that there are numerous benefits of using blockchain technology for everything related to business. Considering how blockchain could boost trade by more than $1 trillion in the next decade, according to the World Economic Forum, this may be a call-up to blockchain companies to offer SME-based solutions. 

Reach out to us to find out more about how to use blockchain technology to grow your business.

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