The Role of Cryptocurrency in Small Business Financing

Cryptocurrency has rapidly become a tool for small businesses to utilise. The financial landscape demanded small businesses pay transaction fees, struggle to gain capital and funding, and face delays in payment processing.

Small business financing has always been a poignant subject – in 2022, running out of money and struggling with cash flow was the cause of 44% of small business failures.

Could cryptocurrency be the answer to small business financing struggles? Well, it’s a growing trend. Approximately 15K businesses worldwide accept Bitcoin, with many more accepting other cryptocurrencies. Tesla, for example, accepts DogeCoin (naturally, with Elon almost claiming the meme coin for his own).

Should small businesses adopt the use of cryptocurrency? Let’s explore the benefits below.

Streamlined Transactions

Cross-border transactions have never been easier than cryptocurrency. Blending with the next section, cash flow improvement, cryptocurrency has given small businesses the ability to complete streamlined transactions, both nationally and internationally.

There’s a simple reason behind it – traditional banking systems require third-party authorization. The instant and secure data exchange between parties facilitates an open and transparent transaction trail. How does it do that?

Taking Bitcoin as an example, the owner of the Bitcoin will provide their public key and associated digital signature. That transaction is then digitally signed by a private key, which indicates the authorization to spend the funds referenced in the transaction.

These transactions are then distributed and authorised through blockchain technology almost instantly. Sometimes, there’s a small delay, but nothing compared to traditional banking delays.

Cash Flow Improvement

Business is plagued with slow transactions. The intermediary third-party authorisation – typically a bank – will charge a processing fee. For example, in the US, the typical payment processing fee when paying by credit card is around $0.25 for the tap of the card plus between 2 to 4% of the total transaction. Despite paying for processing the payment, it can take weeks for it to authorise larger transactions.

On top of accepting cryptocurrency as a viable tender, businesses can also use crypto cards like Nebeus’ to manage transactions and cash flow.

According to a study by Skynova, 47% of startups and small businesses that failed in 2022 were due to a lack of financing. Now, with cards like the Nebeus, companies have the option to take out favourable loans backed against their cryptocurrency investment.

Customer Security

In 2022, about $1.5 million was lost due to bank transfer and payment fraud and there were 1800 counts of data compromises impacting over 400 million people. Those data breaches might not necessarily link to financial information, but the potential for it to include customer financial information is high.

With blockchain technology and cryptocurrency, there’s an added layer of decentralised protection because it’s almost impossible to go against the nodes of authorization.

As mentioned above, when a transaction goes to authorization, it goes across an entire network consensus that all must agree to authorise the transaction. If one node of authorization fails, the transaction does. No money lost, no waiting for the return of funds, no chargeback issues.

Protects Business Fraud

As well as protecting consumers, cryptocurrency payments can protect businesses thanks to the decentralised technology that almost prevents fraud. There are still cases, but markedly lower than traditional banking fraud.

The benefit is the transactions are as final as a cash payment. Once it’s authorised, there’s no way of going back and reversing the charges, hence decreasing the prevalence of chargeback issues that can plague small businesses with poor cash flow.

Customer Financial Inclusion

Customer financial inclusion by utilising cryptocurrency as a tender opens new avenues of income for a small business. Statistics show there are over 1.4 billion unbanked adults across the globe. Granted, only 5.9 million of those people are in the US, but that’s still a market of people to tap into.

Plus, with the ease of transactions and how streamlined cryptocurrency payments are, there are no cross-border issues. Cryptocurrency doesn’t discriminate based on location.

According to a recent study by BitPay, 40% of purchases using Bitcoin came from new customers.

Cryptocurrency is changing the financial landscape. The role of cryptocurrency in small business financing is becoming more prominent as the global adoption of the decentralised currency grows. Small businesses struggling with financing can utilise cryptocurrency for financial, customer, and general business growth. It’s a trend big brands like Tesla, AT&T, and Microsoft are already utilising.