How DeFi could solve SME cashflow headaches

11 January 2022

Cashflow-hungry small and medium businesses, particularly crypto-native companies, are starting to look beyond banks for their small business finance needs. Enter the world of decentralized finance (DeFi).

In our post-covid world, small businesses, including tech startups and scaleups, are feeling the pinch. Inc reports that 80 per cent of small businesses are failing due to cash flow shortfalls. Aside from repeated lockdowns, supply chain issues and mental health challenges, banks have put the nail in the coffin for many SMEs because of a downturn in loan approvals.

As small businesses look for alternative solutions to their banking woes, blockchain-driven finance solutions are looking more and more enticing. So, why DeFi, and how does it help business growth?

DeFi could be a gamechanger for cashflow-hungry SMEs

What is DeFi?

Decentralized finance (DeFi) comprises blockchain-based finance applications that are automated, decentralized and fast. DeFi transactions occur via decentralized apps (dApps). These, essentially, have the power to democratize finance for retail investors and small businesses that rely on the need for high liquidity.

DeFi is a relatively new technological solution for small and medium enterprises because the software produces smart contracts with an inbuilt set of rules that govern transactions.

Smart contracts automate financial transactions and negate the need for bank and loan approvals officers and other intermediaries. For businesses, this speeds up loan approvals and funds transfer, and because transactions are peer-to-peer, they are less expensive to administer than traditional bank transactions.

80 per cent of small business fail due to cash flow shortfalls - Inc

Why is DeFi gaining momentum in the SME space?

Unlike larger enterprises that strive for greater efficiency at scale, cash flow is king for SMEs, startups and scaleups.

And SMEs can struggle to meet their liquidity needs using traditional banking systems, especially when banks are not lending as readily.

Before DeFi existed, businesses would have to go through a complex system of checks and balances such as “know your customer” and anti-money-laundering reviews for every single capital source including loans, and credit cards. They’d also be applying for finance based on their financial statements alone and no other business performance data.

However, once your information is on the blockchain, you cannot change it, only add data to it. So, DeFi allows for reliable data to be shared across a system, removing these barriers to SME financial services.

Cryptocurrencies are becoming more mainstream

It’s now easier than ever to trade using cryptocurrencies, and in countries where banking systems are less than optimal, small businesses are starting to engage more with digital currencies in day-to-day business, from paying employees to buying office supplies.

What are some of the pitfalls?

Lack of regulation

The DeFi industry is not regulated at present. So, if hackers breach your digital asset account, there’s no recourse. Your country’s securities authority can’t intervene. Sure, you can report the crime to the authorities like the FBI, but, in all likelihood, you will never see your funds again.

No automatic insurance

DeFi accounts are not automatically insured. You can, however, buy crypto insurance to protect your digital assets.

Software vulnerabilities

Software drives DeFi smart contracts, and software is only as good as the developers who write the code. Therefore, it’s crucial to ensure that any platform you use has a good track record for addressing bugs and glitches. The problem with glitches is that while programmers can fix them, they sometimes enable hackers to break into people’s funds. For example, hackers have breached some relatively large crypto exchanges in recent times.

DeFi has the potential to empower SMEs that rely on high liquidity.

How crypto custody solutions are addressing the shortfalls for SMEs

Many crypto-native businesses opt to put their funds in cold storage to safeguard digital assets, but these can be expensive and cumbersome for SMEs who rely on greater liquidity. That’s why we’ve developed Unido EP, to offer a crypto storage, trade and transaction solution that meets SME’s cash flow, compliance and security needs.

How to start exploring the world of DeFi as an SME

Set up an enterprise crypto wallet

While there are many wallets for retail investors, few have the cash flow, compliance and security needs of small and medium enterprises in mind. Unido EP is an enterprise-level crypto wallet that enables you to put your idle treasury assets to work, make business transactions and more.

Research and trade crypto assets

Robust DeFi projects have detailed white papers explaining the companies’ vision, direction, roadmap and people. They also have well-moderated communities, blogs and helpful support teams. Always do your research before trading and investing in cryptocurrency, just like any investment.

The future for DeFi and SMEs

As demand grows for enterprise crypto transactions, the industry will respond in kind. Enterprise crypto solutions are gaining momentum, so we are excited about leading the way for SMEs and crypto-native companies who want faster, more flexible, less expensive, more secure wallet solutions than what is currently on the market.

As the industry matures, we anticipate more regulation will come into play, and that’s why we’ve built our app to meet the specific needs of crypto-native small and medium enterprises.

Are you looking at cryptocurrency and DeFi solutions for your SME?

About Unido EP

Unido EP takes the complexity and expense out of asset management for organizations with sophisticated corporate governance requirements. Our patented, end-to-end platform seamlessly automates corporate governance, custody and digital asset management, so you can securely store, manage and invest in crypto without massive overheads.

Unido EP comes with a web-based dashboard and a decentralized application (dApp) featuring a robust set of DeFi tools, easy-to-set-up authority regimes, and iron-clad security. All of this is inside a complete digital asset management platform, built with financial institutions in mind but tailor-made for any organization or individual’s needs.

About Unido

Unido offers a suite of crypto custody solutions for enterprises and institutions based on a state-of-the-art fragmented private key signing engine, allowing distributed transaction signing at the blockchain level and providing a corporate governance framework over crypto ownership.

This level of corporate governance workflow and security technology is needed by sophisticated organizations to confidently leap crypto, augmented with a Defi investing dashboard to make earning a yield on digital assets a point-and-click activity.

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Caroline (Cara) Szellemes | Content Marketing Manager

Caroline (Cara) is a seasoned, multi-award-winning content marketing strategist, tech founder and author specialising in blockchain content marketing. She's the Amazon No. 1 bestselling author of Your Brilliant Un-Career: Women, Entrepreneurship and Making the Leap and the founder of global social venture 180Selfcare.

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