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How AI can improve SMEs’ access to financing

By Eyal Moldovan, CEO and Co-founder of 40Seas

Given the challenging macroeconomic and geopolitical conditions, SMEs contenting with supply chain disruptions require rapid access to financing to stay afloat now more than ever. Outdated payment tech and financing options have exacerbated supply chain fragmentation, especially for SMEs who now make up 43% of global cross-border trade volume, according to research carried out by the OECD. Despite their prominent role in global trade, SMEs have long struggled with a financing ‘glass ceiling,’ hindering their cash flow and profitability.

Unlike the tech-driven advancements that have transformed other sectors, trade financing has remained stagnant in comparison, failing to meet the evolving needs of SMEs trying to make it in today’s competitive global economy. Swift access to capital is of critical importance, particularly when we consider the fact that SMEs are seven times more likely to be denied trade financing than multinational firms (WTO).

In fact, a recent report looked at how the SME sector in Bangladesh is being neglected when it comes to accessing finance for foreign trade, noting high levels of application rejections. Five reasons for rejections were referenced – 36% of loan applications were rejected due to lack of collateral, 18% due to high interest rates, 17% for lack of previous transaction information, 11% for high risk and 10% for lack of sufficient documents. Many of these factors lie outside of the control of SMEs, who, due to their very nature, often lack the extensive financial resources and established credit histories of larger corporations.

Additionally, traditional trade finance institutions and banks generally don’t have the capacity to assess the creditworthiness of SMEs for cross-border transactions efficiently. This is particularly problematic for SMEs relying on Letters of Credit (L/Cs) to address cash flow issues.

Even when SMEs have the relevant documentation and transaction histories, traditional trade financing processes can be quite protracted, meaning SMEs are forced to wait weeks or even months for their applications to be reviewed and approved. Given these limitations, the case for exploring innovative solutions that can level the playing field for SMEs is a compelling one. In particular, AI can be put to work to help ease the financing challenges of SME importers and exporters – bridging this capability gap of large institutions and banks by analyzing vast financial data to verify creditworthiness, assess risk, and process financing more efficiently. AI can rapidly verify creditworthiness by synthesizing financial statements and transaction history, enabling more accurate credit evaluations. This can help deliver much needed clarity around capital availability for SMEs operating in today’s highly unpredictable supply chain landscape. Through automated underwriting processes, SMEs can secure financing in a matter of hours, which can make a world of difference to their bottom line.

By leveraging AI to broaden working capital availability for SME importers and exporters, emerging and smaller SMEs stand a greater chance of obtaining the necessary funding to capitalize on opportunities in the global trade arena. This opens the door to more customized financing options, even for SMEs without extensive credit histories.

With global AI investment projected to reach $422 billion by 2028, the trade financing landscape can expect a windfall of AI-driven initiatives in the coming years. This embrace of AI and data-driven technology is at the heart of the 40Seas mission to modernize SME cross-border trade, and since our soft launch in October 2022, we have already financed invoices for dozens of SMEs. Our solution is available as an API or stand-alone platform, both of which can be seamlessly embedded into checkout portals to improve business flow and deliver more convenience to customers. In addition to supporting real-time synchronization with ERPs, we leverage data-driven technology to automate decision-making processes and verify creditworthiness. We believe the proliferation and adoption of AI-led tools can help bridge the trade finance deficit at a critical juncture in the global trade landscape.

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