SME Trade Finance | 2022 SME Trade Finance Research

2022 SME Trade Finance Research

Trade Finance Global / Introduction to Letters of Credit | 2022 Guide / SME Trade Finance | 2022 SME Trade Finance Research

SME Finance | 2022 SME Trade Finance Research

Welcome to TFG’s 2022 SME trade finance research

Trade Finance Global (TFG) surveyed firms in the target regions of Belgium, the Netherlands, Germany, and the UK to better understand SMEs’ trade finance usage norms and their propensity to pay for new or additional trade finance products and services.

Overview of the research

According to the World Trade Organization (WTO), 80% to 90% of world trade relies on trade finance.

The tools and instruments that are used to finance the world’s trade flows come in many different forms and can be used for a wide array of applications.

Traditionally, the letter of credit (LC) or documentary collection (DC) have been the main instruments used, but in recent decades global forces have increased the volume of open account trade conducted.

This report begins with a brief overview of relevant economic and geographic data from the four markets of interest: Belgium, the Netherlands, Germany, and the UK. It will then explore the results of our SME market survey before concluding with our analysis and insights thereof.

Respondents by location - SME research

What’s in the SME trade finance research?

During the current times of high inflation, record energy prices, and geopolitical uncertainty, we wanted to take stock on SME attitudes toward trade finance in Europe.

Both funded and unfunded trade finance products are often a lifeline to cross-border SMEs, particularly during economic downturns.

Trade Finance Global (TFG) surveyed firms in the target regions of Belgium, the Netherlands, Germany, and the UK to better understand SMEs’ trade finance usage norms and their
propensity to pay for new or additional trade finance products and services.

TFG also compared macroeconomic export data, provided by Trade Data Monitor, to assess sentiment towards digital trade finance and export opportunities, by trading partner and commodity type.

The SME survey asked respondents to indicate their interest in trade, inventory, and invoice finance. The survey also investigated the likelihood of SMEs to pay for these services at certain annualised price points.

Other examples of areas researched:

  • Trade Finance Market Overview
  • Views on Documentary Collection & Letters of Credit
  • Propensity to pay – optimal margins
  • Usage of Letters of Credit
  • Market proposition

Download our free SME trade finance research


Frequently Asked Questions

How were the surveys carried out?

To acquire the data presented in this analysis, TFG surveyed firms in the target regions to gain a better understanding of SMEs’ trade finance usage norms and their propensity to pay for new or additional trade finance products and services.

The survey was designed to gain insight into firms based on numerous factors, including business type, operating location, annual revenue, use of third-party financing, average inventory levels, current number of lenders, current debt utilisation, current cost of debt financing, and letter of credit use.

The survey asked respondents to indicate their level of interest in a new market entrant that seeks to provide trade, inventory, and invoice finance.

It also investigated the likelihood of SMEs to pay for these services at a 4%-8% per annum price point.

Is the trade finance gap growing?

The world’s trade finance gap is growing.

According to the Asian Development Bank (ADB), the global trade finance gap hit a record $1.7 trillion in 2020, up 15% from a previous high of $1.5 trillion in 2018.

Other estimates from the UK All-Party Parliamentary Groups (APPG) on trade finance put the current gap as high as $3 trillion to $5 trillion.

Regardless of the exact size of the gap today, there is no debate that it disproportionately impacts micro, small, and medium enterprises (MSMEs).

What is the appetite for SME trade finance?

In order to gauge the market gaps for trade finance, TFG asked respondents whether a specific SME trade finance lending product would be of interest.

90% of respondents showed interest, as it would facilitate financing to pay suppliers and to hold stocks, as well as be useful for invoice finance purposes.

However, when provided with the specific price point of 4%-8% per annum for these services, interest dropped to 80%.

Overall interest in new market entrant

Overall interest at 4%-8% p.a.

What factors impact propensity to pay?

Some of the factors that influence propensity to pay:

  • Current financing costs
  • Firm revenue
  • Inventory levels
Are Letters of Credit and Documentary Collection important for SMEs?

Slightly more than half of all respondents use LCs in some capacity, and more than 95% of those consider them to be an important part of their business operations.

Consequently, it is clear that LCs and DCs still hold a prominent position in trade finance for SMEs.

That being said, firms that do use LCs reported a significantly higher propensity to pay for trade, inventory, and invoice facility services from the new entrant than those firms that do not.

What are the key findings?

In the current environment, we see demand from many mid-market corporates and SMEs, which are looking for additional flexibility from their trade, inventory, and receivables finance partners across structures, their asset base, and terms.

We have seen the same demand for liquidity increasing in the corporate space, coupled with a shortage of expertise from the trade finance industry.

Therefore, a bank offering such services allows for flexibility with the client, where there is a modest compromise on pricing.

This creates an appealing offering as it sits in between clearing banks and alternative finance options

How can we help?

The TFG team works with the key decision-makers at 270+ banks, funds and alternative lenders globally, assisting companies in accessing trade & receivables finance.

Our international team are here to help you scale up to take advantage of trade opportunities. We have product specialists, from machinery experts to soybean gurus.

Often the financing solution that is required can be complicated, and our job is to help you find the appropriate trade finance solutions for your SME.

Read more about Trade Finance Global and our global team.

Download our free SME trade finance research


Download our free SME trade finance research


Contents

Access trade, receivables and supply chain finance

We assist companies to access trade and receivables finance through our relationships with 270+ banks, funds and alternative finance houses.
Get started

Speak to our trade finance team

About the Author

Joana Fabiao is the Marketing Manager at Trade Finance Global (TFG).

She holds a BA in International Business from the University of Westminster, with a core focus on Global Economic Issues, International Financial Management and Organisational Behaviour. She also holds a certificate in Bloomberg Market Concepts.

Prior to working at TFG she worked as Junior Consultant in the Marketing and Events Department at Westminster Business Consultants, focusing on their social media campaigns, content and marketing strategy.

Back to Top