What is Supply Chain Financing and how does it help Small & Medium businesses?

SMEs face substantial challenges when trying to get loans and financing from #financial institutions. The biggest obstacle to the growth of #smes is thought to be the lack of financial facilities available to them. They are reliant on borrowing from friends and family as well as their own money. Financial institutions have a strict application process for loans to SMEs. Lenders are always sceptical of providing loans to SMEs because of their business status despite the guarantee that they will pay the loans as stipulated.

SMEs have to follow a severe lending requirement, including having been in business for at least three years and must have all the banking records and viable business plans to satisfy the lenders. The tax records are stringent. In other words, getting loans for their #business Loans is highly challenging. It is where supply chain finance comes to its rescue.

?Let’s try to understand what #supplychain Financing is

Supply Chain Finance (SCF) is defined as "a combination of trade financing offered by a financial institution, a third party provider, or a firm itself, and a technological platform that electronically connects trading partners and financial institutions and delivers the financing triggers based on the occurrence of one or many supply chain events." Providing benefits to all.

Seems complicated!

Let me try to make it simple

In supply chain financing, a third party, generally a #bank facilitates between a buyer and the seller and commits to paying the company’s invoices to the supplier at an accelerated rate in exchange for a discount. Supply chain financing?benefits both the Buyers and the Sellers

Supply chain Financing keeping SMEs in view

A supply chain finance arrangement involves a buyer, a supplier, and a financial institution. This refers to the process of improving a supplier's working capital position by leveraging the credit standing of a buyer. A bank usually acts as a financial middleman between a small and medium enterprise and the supplier. Due to the fact that both #buyers and #suppliers are interested in gaining financial gain from authorizing working capital, there is a conflict of interest in the supply chain. Buyers choose to pay their requests later than expected to maintain liquidity. As suppliers, we would like to be paid early in order to minimize liquidity and solvency risks. This will benefit both SMEs and suppliers.

While suppliers would like to pay early with a specific goal to minimise #liquidity and solvency risk. Both the supplier and the buyer are able to release working capital thanks to SCF.and maintain a higher level of liquidity by adding a financial intermediary institution. It enables the buyer to defer the payment for a longer time, as opposed to early payment made to suppliers. Supply chain financing is undoubtedly a type of financial arrangement between a financial institution, the buyer, and the seller.

SME businesses benefit from the Digital Platform ecosystem by streamlining communication between all parties. As a result of technology, parties are able to meet their business requirement by communicating clearly. The parties use app-based services that improve the effectiveness, agility, and transparency of the entire lending process.