The Future of Working Capital Finance

“Membership has its privileges.” We all know that slogan from American Express, which the iconic company used from the late eighties well into the nineties, and is clearly a campaign the retail finance industry has ingrained into our memories. It also represents an efficiency that has existed on the consumer credit side for many decades. If I’m a retail buyer and want to pay right away, I can just use cash. If I want to pay 30 days later, I pull out a credit card. For larger purchases, I can qualify for an installment loan and buy things like appliances and automobiles. In other words, as a consumer (buyer), I am in charge and can pay the retailer (supplier) whenever I decide, using my own funds or that of a credit card or installment lender (funder). So why doesn’t that same level of access to capital apply to small and medium-sized businesses, as well as the middle market?

According to Entrepreneur magazine, there are between 25 million and 27 million SMBs in the U.S. that account for 60 to 80% of all U.S. jobs. They are the drivers of the American economy. Furthermore, a study by Paychex states that small businesses produce 13X as many patents as their larger counterparts. So not only are SMBs driving jobs, they are also the innovators in our economy. Yet they remain an underserved market when it comes to working capital and trade finance. The International Chamber of Commerce (ICC) recently found that while SMBs submit 44% of all trade finance proposals, they account for 58% of all rejections, a disproportionate amount. For this critical audience, flexible access to capital just doesn’t work for them as it does for so many of us as consumers. The bigger guys? They don’t have the same set of problems, either. With a larger revenue base, track record, and concrete assets, most enterprise companies have no difficulty finding and qualifying for working capital, and at attractive rates. It’s the smaller players, SMBs through the middle market, who are truly driving jobs and innovation in today’s economy, but are struggling with this.

So how do we change this? At TradeRocket, we’re creating a marketplace where buyers pay when they want, suppliers get paid when they want, and funders deploy capital safely and efficiently. We know this process already works for consumers. It also works today for big companies, and we’re leveraging our marketplace to make it work for everyone else. In the next evolution of working capital financing, there is no more paper, everything is digital, trackable, and auditable. Taking an “Early Pay” or “Extending Payments” happens at the click of a button, and sounds so much better than factoring, which for many companies is not a preferred practice. Lastly, and perhaps most importantly, we don’t require a major technology integration that no one has the time or resources for, it’s all in the cloud. Getting working capital into the hands of companies who need it for growth is our passion - stay tuned.

Jim Eckstein