Photo by Tim Mossholder on Unsplash

December 10, 2021

Solving the SME Conundrum Is About to Get Much Easier

by Jennifer Jarvis, Head of Channel Partnerships at Accelera

The SME conundrum is real. There are also real solutions on the horizon.

Small and medium sized enterprises (SMEs) are the bedrock of the Canadian economy. They represent 90% of employer businesses, employ 88.5% of the total private labour force, and account for well over half of Canada's GDP. Consumers interact with SMEs and their products every day, from visiting our favourite coffee shop to using smart devices in our homes that help to reduce energy consumption. 

But it's tough being an SME 

Smaller enterprises struggle with the same big challenge that all businesses face — managing cash flow — but with fewer resources and options available. Basic daily tasks, from managing payments and receivables to getting access to credit, can require manual reconciliation and multiple applications. And when businesses expand overseas or require operations and manufacturing abroad, there are additional roadblocks like foreign exchange, currency risk, and on-time payments to navigate.  

Perhaps the biggest challenge SMEs face is affordable and timely access to financing. In Canada, which has the lowest proportion of outstanding business loans held by SMEs among the G7 countries, it is arguably even harder. So, while an individual can apply and be approved for a million-dollar mortgage in seconds, it can take up to two weeks for an SME to secure a $50,000 loan or a line of credit. And typically, these companies operate with small teams who wear multiple hats and have limited technology resources.  

The SME conundrum is real  

Smaller enterprises have more complex needs than consumer products can support, but they are not large enough to get the attention of banks or able to handle the technology demands of integrated solutions. They get stuck.  

Let's break this down a little further. Historically, banks have built products and services that cater to the more complex needs of commercial and larger business clients. Personal technology advancement has also driven the creation of consumer solutions. These separate focuses have left SMEs in an underserved, grey zone. They end up straddling the gap between their personal finances and their businesses: half in the consumer world, half in the business world. 

Photo by Blake Wisz on Unsplash

Tech to the rescue 

Fortunately, there’s been exciting movement in this space, with a rise of fintech solutions targeted to SMEs. Fintechs tend to cherry-pick problem areas and solve them very well — think Square for payment acceptance, QuickBooks for accounting, and CRM systems to manage deal flow. Having access to so many potential solutions may sound ideal, however, too many options can become just another challenge.  

SMEs typically run lean. Without the support or expertise to evaluate tech solutions or the resources to integrate and manage them, many SMEs turn to a platform solution — a one-size-fits-all package with a hefty price tag to match. (At Root, we regularly meet clients that don’t want the headache or cost of a mammoth platform that doesn't satisfy their specific needs.) To further complicate matters, all-in-one platforms can make accessing business and customer data an onerous process. Yet that data is key to staying competitive.  

Opening opportunities  

The good news? SMEs no longer must accept the “that's the way the system works” mentality. That’s thanks, in part, to Open Finance. 

Traditionally, banks, financial institutions, and large (e.g., utilities) companies own their customer data and determine how it’s used. Open Finance, which is being implemented in Canada in a phased approach starting in 2023, changes that.  

Open Finance allows for the safe and secure transmission of data (bank transactions, bill payments, etc.) between service providers. Having control over and leveraging data leads to better products and services. For example, imagine a future where SMEs can be proactively offered pre-approved lines of credit, just when they need it, based on predictive analysis of cash flow in real time.  What drives this capability? Access to data and lower cost technology solutions.     

Here are three key areas where Open Finance benefits SMEs: 

See a holistic view of finances. Access to data across businesses unlocks a multitude of efficiencies, from managing and forecasting cash flow to understanding a business’ overall health. 

Improved access to financing. The ability to share data from multiple sources helps to eliminate red tape and tedious data collection, providing lenders with a comprehensive financial picture of a business and expediting the approval process. 

Initiate payments more easily. Improved access to payment acceptance services (e.g., via a mobile phone, "click-to-pay" for invoices, seamless deposits and reconciliation, and buy-now-pay-later options) make it easier to be paid, increase product sales, and provide a more predictable longer term cash flow.    

With improved access to data, technology, and services, businesses no longer need to operate in that uncomfortable grey space. It becomes exponentially easier to grow and thrive.  

At Root, we leverage Open Data and facilitate data flow to provide even more options for growth, more opportunities to solve the SME conundrum. The Root Studio empowers SMEs to create their own experiences by leveraging FinTechs of their choice and provides the tools to take control — without technical resources and expertise.  

It's an exciting time for Canada as we move forward with Open Finance, with the potential for game-changing opportunities on the horizon for SMEs. If you want to be first in line to embrace the possibilities — or if you’d just like more information about how Open Finance can help grow your business — reach out to us