Whether it’s your favorite pizza place that treats you to Italian flair and flavor anytime, the local bookstore with the best curated selection, or the creative agency that really understands your business, micro, small, and medium enterprises (MSMEs) are considered the backbone of the world economy.

In fact, according to the World Bank, MSMEs make up roughly 90% of businesses globally — there are approximately 400 million of them — and employ 50% of the workforce.

While smaller businesses tend to be more flexible and quicker to change than larger corporations, they are much more vulnerable to deterioration in the business environment. The COVID-19 pandemic has unleashed extensive socioeconomic impacts, putting millions of companies worldwide at risk of being forced out of business.

The crisis has hit MSMEs and their workers particularly hard. A significant challenge for them can be access to working capital to run and grow their business. This was already an issue for many small companies before the crisis started. The International Finance Corporation estimates that 65 million firms in developing countries have an unmet financing need of $5.2 trillion every year — almost twice the GDP of the UK.

Getting Access to Cash Is Tough

MSMEs in particular rely on funding from banks, since they typically do not access capital markets. Over the last decade, 43% of external finance for MSMEs in the euro area has come from bank loans, double the share for large firms.

However, getting a loan can be difficult for MSMEs. Rejection rates have always been higher due to the costs of serving customers and higher risk profiles for banks, as well as a lack of traditional data to accurately evaluate the creditworthiness of MSMEs. This lack of information about the applying business and the limited transaction history are among the concerns and why their lending requests get turned down.

How can this funding gap be bridged?

No Business Can Do Business Alone

Over 5.5 million companies conduct business-to-business (B2B) e-commerce on the newly unified SAP Business Network. Between buyers and suppliers, $3.75 trillion of B2B commerce activities transpire. The next phase of evolution is to integrate the physical and financial supply chains. Historically, siloed or inaccessible information from vendors and disconnected systems and teams across the organization posed challenges for companies to react to changes quickly.

Leveraging SAP Business Technology Platform (SAP BTP), SAP Supplier Financing enables an open ecosystem of financial institutions to integrate and embed relevant financial solutions within the context of every business transaction executing on SAP Business Network.

SAP Supplier Financing leverages the data that was traditionally locked within an SAP system to unlock new ways for banks to distribute finance to MSMEs and bridge the funding gap.

Available since 2018 and started as an internal venture in the SAP.iO program, SAP Supplier Financing adds capabilities to SAP Business Network with a new working capital solution for trading partners, providing millions of transacting suppliers with simplified and cost-effective access to a network of lenders to help improve cash flow. Suppliers can use this free extension as part of their existing Ariba Network subscription. At the same time, their corporate buyers that are already part of SAP Business Network will not be charged with IT implementation costs, nor with additional software commitments.

Data Alone Does Not Provide Value

Connecting a stack of applications, data, and business processes gets more complicated by the minute as today’s businesses operate in an increasingly complex IT environment. MSMEs are no different. Data is king, but with the rapidly growing number of data sources, types, and volume, creating value from data is getting tougher. Aware of these challenges, SAP Supplier Financing was built on SAP BTP from the ground up. It leverages Ariba Network data such as the supplier profile, invoice, and purchase order and turns it into real insights and business value for the suppliers by matching their financial needs with curated funding partners.

With SAP BTP, suppliers can review multiple offers from funding partners without sending paper and scanned PDF documents usually required for due diligence process and funding events. Once they choose an offer and establish the relationship with the funding partner, SAP BTP automates the exchange of electronic data between the supplier and their funding partner, thereby improving the daily sales outstanding (DSO) from a few months to only a couple of days.

Since its inception in the SAP.iO Venture Studio in 2017, SAP Supplier Financing has facilitated more than $70 million in funding to Ariba Network suppliers. During the pandemic, the former SAP.iO venture facilitated access to over $40 million in financing for MSMEs in the U.S., supporting a steady cash flow in times of crisis.

Enable Financial Partners to Get the Full Picture

Providing suppliers with access to capital via Ariba Network is one side of the coin. On the other side are financial institution partners in need of verified data to assess the financial situation of these supplier businesses. With SAP Supplier Financing on SAP BTP, financial partners get unified access to consolidated data across different trading partners along with the ability to integrate data from non-SAP data sources on a single platform for improved transparency into the financial health of the MSME. This turns raw data into real business value, allowing banks to serve smaller firms effectively and efficiently and to limit the risk of investing in a failing business.

Started with the successful integration into Ariba Network, SAP Supplier Financing now aims to scale the matching solution outside of the U.S. and eventually offer it as part of SAP Fieldglass, SAP S/4HANA, SAP Commerce Cloud, and SAP Concur software.

SAP.iO is SAP’s strategic business unit to incubate, accelerate, and scale startup innovation and explore new business models for SAP. Since 2017, SAP.iO has helped over 300 external startups and internal ventures both start and scale their businesses while enabling thousands of SAP customers to access innovation.

Vishal Shah is founder of SAP Supplier Financing.