Blockchain & Intercompany lending, a solution for sustainable growth
Having failed to diversify their financing, SMEs are often alone when it comes to liquidity risk. Blockchain makes it possible to digitalize inter-company lending and build new cooperative ventures between SMEs and large corporations, a factor in sustainable growth.
A fragile geopolitical context, risks to Chinese supplies, raging trade wars and falling key interest rates could foreshadow a new financial crisis. In an unstable economic environment, companies are all the more faced with the major risks posed by the fragmentation of supply chains.
The question today is not when a new global crisis is likely to occur, but rather, is my company adequately prepared for supply chain malfunctions or liquidity risks?
Companies need to secure their supply chains. They need a financing system to support a sustainable economy, and to consolidate cooperation with their strategic partners.
We invite you to discover how digitalized inter-company lending is a solution for sustainable growth. It can help companies in the same sector to weather crises and build lasting links.
Financial crisis: liquidity risks for businesses
In the event of a financial crisis, one of the impacts on companies is liquidity risk. To understand the concept of liquidity, let’s look at the effects of the financial crisis on the interbank market. During a financial crisis, liquidity on the market “dries up”. In other words, banks no longer lend money to each other, for fear of not being repaid. They also want to preserve their liquidity as much as possible, in order to cope with any future financial difficulties.
Against this backdrop, banks that borrow on a short-term basis no longer have any solutions for financing themselves, and can therefore no longer meet their commitments to companies. This is known as liquidity risk. This is exactly what happened during the 2008 subprime crisis, with the collapse of Lehman Brothers. In the event of a financial crisis, companies can no longer find new sources of financing. Companies can no longer meet their receivables. This is what we call liquidity risk for companies, and the threat of bankruptcy is very real!
Today, it is possible for companies to find alternative means of financing, so that they are no longer solely dependent on financial institutions that are too sensitive to globalized financial markets. Intercompany loans are a sector-based solution for maintaining business growth without having to go through the banking world, and limiting liquidity risk for companies!
How does direct business-to-business lending strengthen business-to-business cooperation with Blockchain ?
Inter-company loans: a resilient solution to the crisis
Faced with the risk of liquidity shortages, in times of crisis or otherwise, it is essential to diversify your sources of financing in order to ensure the growth of your business. As is the case for large corporations and ETIs, diversifying your sources of financing is a solution for small and medium-sized enterprises (SMEs), which have difficulty finding financing and often face the reluctance of banks, increasingly constrained by regulations (Basel III).
Intercompany loans enable your business to continue growing, even in a crisis. The liquidity risk for companies is reduced when financing is secured! To make things clearer, let’s start by defining what an intercompany loan is.
An inter-company loan (direct inter-company financing, intra-group credit, family and/or network credit) is a loan concluded between companies. According to the Banque de France, it accounted for more than €1,200 billion in 2015, while bank lending to businesses was less than €1,000 billion.
Direct lending between companies (not belonging to the same group) has been possible since 2016, and enables SMEs in particular to diversify their sources of funding with several financiers. Intercompany lending is therefore an ideal solution for dealing with potential financial crises and liquidity risk for companies, since this type of lending is not dependent on conventional banking institutions.
Does the inter-company loan make it easy to finance projects between companies with a view to the long-term future of the sector?
The benefits of digital intercompany loans
If inter-company lending seems to be an appropriate solution for financing without banks, the We fundia platform goes one step further by reinventing inter-company lending! This digital platform enables companies to lend directly to each other, thereby limiting liquidity risk for businesses. Cooperation within an ecosystem and security of supply are the watchwords!
With crowdfunding, or rather crowdlending between businesses, companies in the same ecosystem (whether by sector or by region) can finance each other’s projects. In this way, larger companies can help smaller ones to grow, without having to go through the banks!
What is crowdlending ?
This is a form of participatory financing dedicated solely to businesses. In practice, private individuals lend money to companies for a specific project, who are repaid their investment if the threshold is reached, with additional interest. With BtoB crowdlending, companies can finance their projects directly.
In the collective work “Le crédit inter-entreprises en Europe”, published in November 2019, the Director of Publication, Michel Lescure (Professor Emeritus at the University of Paris X-Nanterre) reaffirms that inter-company lending meets the need for companies to coordinate with each other and adapt to progress, whereas it is too often perceived as an archaic form of financing.
France has equipped itself with the means to reinvent inter-company lending with the Blockchain decree for unlisted securities and the regulations around crowdlending. This gives companies autonomy in issuing their receivables to partner companies.
Digitized inter-company loans can be contractualized in the form of bonds or minibonds [1], which are writable on the Blockchain.
Securities movements can thus be recorded in the Blockchain, which acts as a digital registry for unlisted companies. As a result, they have the autonomy to issue their receivables and exchange them over-the-counter. As these digitalized receivables can be exchanged, they offer financiers a certain form of liquidity, enabling them to better control their risk.
In this way, large corporations and SMEs can build new cooperative ventures, freeing themselves from the rigors of banking while developing projects within their own sectors.
[1] The minibon is a type of exchangeable savings bond, registered in a register and subscribable in the same way as bonds.