Tokenization Provides SMEs a New Method of Financing

The newly established companies and SMEs are often too small to raise their capital in the public market and also not efficient enough to complete a “debt” offering or secure a “bank” loan with their limited operating history. 

Why worry about the financing issues of small and medium-sized enterprises (SMEs)?

In Europe, there are more than 21 million companies in the SME sector, employing nearly 90mil people. In the United States, 30 million SMEs account for nearly two-thirds of net new private sector jobs. Hence, the SME sector is significant for both economic growth and employment. Firms with fewer than 250 employees are important players in all sectors within an economy.

SMEs’ borrowing demand in % (left); credit demand in EUR thousands (right)
SMEs' reasons of borrowing and financing

SMEs have been severely underfunded, and financing with internal cash is an unlikely scenario. SMEs face numerous obstacles in borrowing funds because they are small, less diversified, and have weaker financial structures; facing payment delays on receivables, limited liquidity, and a general increase in SME insolvencies and bankruptcies. Furthermore, SME firms find it difficult to provide high-quality collateral at all times or ensure transparency with respect to their creditworthiness, to attract external debt sources.

Mergers and Acquisitions (M&A) in SMEs are more likely to be financed with equity rather than debt, long-term borrowings particularly. It is unfortunately quite costly and often comprises of more stock and less cash than the average deal for large enterprises. M&As can also be considered as options at a certain economic size of a firm. Private Equity companies (PEs) only consider companies with revenue streams of $50 million and more.

Recommendations are alternative forms of financing, improving loan support and guarantees, enhancing access to long-term financing and promoting non-bank financing alternatives

Tokenization democratizes capital markets and transforms traditional financing

Cryptocurrencies can be a more inclusive financing vehicle by allowing small retail investors to participate in the financing of small businesses and startups. Depending on the type of rights accosted with the tokens, companies can raise risk capital with or without sharing ownership or dividends. SMEs are granted direct access to an unlimited investor pool. Investors enjoy high liquidity of their investment and almost instant trading opportunities.

Benefits of ICO / STO

However, there has to be regulatory clarity before Security Token Offering (STO) or initial coin offering (ICO) is viewed as a mainstream financing option of SMEs. 

Also, a differentiation has to be made between Blockchain-enabled projects, products or services, and businesses that are not built on DLTs (Distributed Ledger Technology). The former has a higher potential of benefiting from an ICO, whereas the latter has to offer other benefits to investors such as equity or revenue share.

Still, the benefits of this new disruptive crowd-funding are immense. Once regulatory clarity is reached (at least in some jurisdictions), literally everyone can invest in high potential new tech-startups or fuel a successful existing company's expansion.

The many different ways of fundraising within the Blockchain/ Crypto space. Moonwhale wrote an overview article on Hackernoon.

Visit https://hackernoon.com/a-quick-look-at-various-fundraising-methods-in-the-cryptocurrency-space-46582172eb73

If not fundraising is your goal, but exploring Blockchain as technology to stay competitive, here and here you can find out if Blockchain is applicable to your business.


Disclaimer: This article above is purely for educational purposes. Therefore, it should not be used as financial advice or an indication that Moonwhale supports the aforementioned companies.


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Looking for an STO Consultant?

Moonwhale Blockchain Ventures Inc. position ourselves to provide STO solutions, helping SMEs with our STO Financing service. Based in the USA, Moonwhale will assist you as STO advisors in One-Stop-Shop solution for your security token offering:

  • Token Economics
  • Token Creation & Issuances
  • Marketing Materials
  • Private Sale Fund Raising
  • Public Sale Fundraising
  • Secondary Market Trading

Please feel free to contact us.

Enjoy our article on SMEs and alternative means of financing? Read more on STO, here is our What Are Security Token Offerings? or Tokenizing Commercial Real Estate.


About The Author:

Danny Christ is the CEO & Co-Founder of Moonwhale Blockchain Ventures Inc.

Based in Kuala Lumpur, Danny has over 20 years of IT, Operations and Supply Chain experience across Germany (home), US, Singapore, Indonesia, Thailand, Malaysia, Vietnam, and the Philippines. He managed IT projects (ERP, CRM, POS, BI) and regional expansion (franchise, M&A) for various SMEs in the Consumer Industry. His career rose to Vice President of a 3500 employees organization.