Go Global . Stay Lean

Overcoming the Financial Barriers

SMEs Encounter Going Global

In this day and age, globalization is at its peak. With the embracement of free-trade economies and open attitudes in foreign markets, businesses from all areas of the world are reaping the financial benefits of international trade. But, as the saying goes: one must spend money to make money. Unfortunately, “going global” implies many potential hardships for companies of all sizes - especially the smaller ones. Many small and medium enterprises (SMEs) encounter circumstances where their limited means cannot easily overcome the financial barriers that exist when entering the global environment. 


In this article, we are offering a quick guide to these potential pitfalls and some options to overcome them


○ Most common financial challenges for SMEs

○ Primary barriers for Canadian SMEs

○ Support and resources available to help work through some of the financial obstacles

Most Common Financial Challenges For SMEs


For those familiar with the global landscape already might ask, “geez, where do we start?” We thought we would start with a general overview of the most common challenges SMEs in any country tend to face. Your business may not face all of these barriers at one time or at all. It varies depending on what industry your business falls in and how you deliver your product/service.


Difficulty Accessing Loans and Inadequate Funds

One of the most classical challenges of facing the“big world stage” is the need for “big world money”  to get started. It doesn’t necessarily take millions in many business cases but being in the international markets certainly can require much more capital to operate compared to a purely domestic-based business (some of these added costs we detail later in this article). Small enterprises often face several challenges operating globally due to the shortage of adequate and timely working capital, and the lack of access to loans. Solving this problem can involve headache after headache for a business trying to qualify for a loan. The cost of borrowing also impacts the business financially, too, making it harder to increase the bottom line.


Tariff Making Imports More Expensive

Tariffs are taxes that a country imposes on the goods that they import for a variety of reasons, the main reason being to protect the domestic economy. The idea behind the practice is that by making imported goods comparatively more expensive, there will be less incentive for foreign companies to saturate a domestic market. Regardless of the reason, the government of a country will make the decision whether to implement a tariff on a good or not. Implementation can come in different forms including a per unit charge, a percentage rate, or some combination of the two. 


Quotas Limiting Imports

Countries may also implement other barriers to entry outside of tariffs.  Import quotas work with a similar goal to tariffs which is to limit the quantity of a particular good the country can import to restrict excess imports entering the domestic market.  A total ban on the import or export trade of a commodity is an embargo.


Exchange Rate Costs

Exchange rates can impact a business that is earning foreign currency from its export trade but is then required to convert those funds through a foreign currency exchange.  The rates of exchange can increase the price of international payments due to the inclusion of markups in interbank rates making overseas transactions costlier.


Receiving Payments from International Customers

A common (and sometimes overlooked) barrier faced by SMEs seeking to enter or expand into the global marketplace is the high cost of accepting money from foreign consumers. Many businesses sacrifice their profits in bank funds transfer and currency exchange rates when transferring value cross-border. This is due to hidden transaction costs (and additional exchange rate costs we mentioned above) that banks don’t openly disclose when a business tries to send and receive international payments.


Complicated Transport and Logistics

Trade logistics are not only limited to cross-border shipping and encompasses a wide range of services, including customs and security, warehousing, and distribution to suppliers. Operating in other countries while, for example, manufacturing in Canada creates many logistical problems. SMEs face more challenges in logistics versus large firms and must either source expensive external logistics suppliers or risk using internal resources with insufficient experience.

Primary Barriers Affecting Canadian SMEs 


The two barriers that apply most to all types of global businesses tends to be the lack of access to loans and the costs associated with receiving international payments. We’ll take some time to discuss this more in-depth.


Lack of Access to Loans

Sadly, it has become progressively more difficult for Canadian SMEs to secure loans from financial institutions. A recent OnDeck survey of 10,000 business loan applicants in Canada found that banks refused to finance 82% of the applications. Canadian banks view loans to small businesses – including startups – as a riskier proposition as compared to mortgage lending, or lending to more significant and established businesses.  As a result, Canadian SMEs pay higher interest rates on loans than big companies due to this (perceived) risk. 


Even if a Canadian SME has a stellar credit rating and a solid business plan, without collateral, the chances of procuring a loan are low. Although Canadian SMEs can receive a small business loan based on the owner’s personal credit history, most lenders are not willing to provide seed money. 


The good news is that creditors are happy to give a small business loan to Canadian SMEs for the purposes of helping their business grow. They don’t want to take the risk of lending to a startup or a business at a very early stage, however. So, businesses starting out with the immediate outlook on the foreign market will likely face a great struggle in procuring that much-needed loan. For those businesses that do qualify, banks will also require creditor insurance on business loans, which covers the repayment of the loan in the case of death or disability of the business owner.


Costs Associated with Receiving International Payments 

Innovations in communication and transportation have made it easier for Canadian SMEs to expand into new markets.  However, many of them struggle with the fundamental aspect of the exchange of money for payments and receipts. Canadian SMEs pay high costs to receive payments. They incur flat fees on incoming wire transfers in the range of $20 - $50 per transaction. Intermediary banks in the middle of a transaction charge an additional fee, making the process more expensive. Canadian SMEs attempting to import or export goods are hit by the slightest of fluctuations in exchange rates. 


SMEs incur other costs during international transactions. The banks’ premium on foreign exchange verges on significantly larger than the mid-market exchange rate. Canadian exporters must also then go through the tedious task of identifying and reconciling wire transfers as it is challenging to identify the payer information on a deposit. Canadian importers are constrained to making payments via wire transfer, limiting their ability to take advantage of more modern payment methods, such as a credit or debit card or e-wallet methods.


Also, as a business expands at an international level, additional compliance and anti-money-laundering requirements arise, requiring safeguards to be implemented to protect against fraud. This generally results in more paperwork a business must do to open and maintain their bank accounts. While other mechanisms of financial support may assist SMEs to offset expenses elsewhere to help accommodate high international payment costs, at this time, there is no direct assistance to SMEs in this area. 

Available Support for Canadian SMEs Going Global


Canadian SMEs looking to expand into global markets are fortunate to have multiple options to explore. Depending on what challenges you are struggling with, one of these options may be a good fit for you. 


Managing Cash Flow

The Business Development Bank of Canada (BDC) is a bank dedicated to business development for Canadian entrepreneurs and provides financing, venture capital, and advisory services.  It specializes in small and medium-sized companies, which makes it an excellent option for SMEs.  


Securing Credit and Guarantees 

Export Development Canada (EDC) is an export credit agency that offers financial services to exporters and their international buyers. They provide guarantees, insurance, loans, and credit services.


Contracts with Foreign Governments 

The Canadian Commercial Corporation (CCC) assists exporters in Canada to obtain competitive contracts with foreign governments.  The CCC supports SMEs access to foreign government markets through a government-to-government contracting approach, working with exporters in markets where the business environment is less predictable and where the foreign government buyer may not have the capacity or capability to tender projects.


Other Private Sector Support

In addition, to support provided by the EDC around insurance products, most of the accounts receivable insurers in Canada are multinational entities that offer the extra benefit of global expertise. Accounts receivable insurance helps businesses to reduce financial risks, improve cash flows, and support overall credit management.


Expanding globally is a venture that, if done right, will yield great opportunities and rewards for SMEs and the Canadian economy, particularly financially. However, the global environment is not always a straightforward domain to navigate, especially for newly globalized SMEs. Being new and small puts SMEs at risk of financial losses that could significantly impact the businesses’ ability to grow.


SMEs can mitigate this risk by first, understanding the financial barriers and challenges they will likely encounter. From there, seeking to find the most efficient, affordable solutions to each barrier, with the help of government support, is the next step. Eventually, optimizing the solutions, tailoring them to your business’ needs is what will help determine how successful a business will be on the world stage. Proper planning, a full understanding of challenges facing SMEs, and full utilization of available supports will significantly assist SMEs in weathering the challenges and thrive over the long term.

Lean Payments is here to champion SMEs’ success. We want to give SMEs all the resources they need to succeed globally, while also offering our own solutions to barriers listed above who lack a full, viable solution. We love to learn about SMEs, what kind of business you do, and how we can help.

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