Economy & Politics

Digital credit business: So that the baker continues to bake bread rolls

Together with CAMPACT, self-employed soloists, freelancers and artists demonstrate in front of the Federal Ministry of Economics in Berlin against the holes in the rescue package.imago images / snapshot
Finiata managing director Jan Enno Einfeld

“Liquidity bottleneck” – if the word 2020 is at the end of the year, this term is at least on the shortlist. Hairdressers, dealers, restaurants – hardly a small business owner who has not succumbed to financial shock for a short time due to Corona. Such businesses are also the backbone of our European economy – aid packages worth billions have been put together in Corona, but even beyond the crisis, financial service providers should not be left alone in the rain in difficult times.

Midday in Europe is time for the small restaurant operators, not the large fast food chains. The small independent restaurants generate over three quarters of the industry turnover. The craftsman next door also repairs the window, not a large corporation. And the hair, “the European” can be cut around the corner in the independent hairdressing salon. There’s also a little update on gossip. On average, there are a good five and a half employed people for each of the more than one million craft businesses in Germany.

Over 92 percent of all European companies have fewer than ten employees. All of a sudden these small companies are in the public focus. Corona is to blame: In Germany alone, € 50 billion in emergency aid goes to the self-employed, freelancers and small businesses. A total of over EUR 350 billion is available for these measures.

It’s not always mismanagement

What is still a little neglected: Liquidity bottlenecks are not a completely new problem for the little ones. Only the dimension is completely different this time. But: Even beyond Corona, it is an absurdity that those who cut our hair or cook for lunch are left completely out in the rain when things are not going well financially. In 2019, 81 percent of bankruptcies in Germany affected companies with up to five employees.

After Covid-19, temporary financial difficulties are not necessarily due to the failure of the owner. It may be that an expensive machine is broken, bills are pending or there is just a (seasonal) doldrums. Everything is quite normal and is not necessarily due to the mismanagement of those responsible. But while large corporations quickly jump the bank aside, bankers only give the baker a tired smile when he wants to borrow some money, whether for just three or five months. Annoying only: If he cannot repair the broken oven, he cannot sell bread rolls. The shortfall results in the bankruptcy.

From an entrepreneurial point of view, at least from the perspective of the lender, this was to be understood for a long time: Short-term small loans are not particularly lucrative. Risks also appear to be easier to calculate if a group guarantees than if a mini-company has to stand just in case. On the other hand, it seems morally questionable whether the entrepreneurial existence should depend on strokes of fate. In contrast to large companies, small businesses do not have their own CFO as specialists in finance. Without banks – in normal times without government aid – and without their own expertise, they are rather at a loss when it comes to financial bottlenecks.

Fear of innovation

The situation appears all the more questionable when one considers that entrepreneurially profitable risk calculations are possible. So if the big financial service providers stop balking at the fully digitized and automated credit check, short-term microloans become profitable and thus available. This requires the right regulatory framework: innovation-friendly, promoting start-ups, and advocating digitization. Digital and automated lending in Germany is currently failing due to the convenience of the financial sector, our deeply rooted fear of change, as well as the preference given to regulators of the status quo instead of innovators.

We can only hope that Corona will at least open our eyes and that we in Europe will learn more about what we actually have in terms of the diversity of our service providers and master workshops. It should be clear to us now at the latest: Anyone who relies on the digitalization of the credit check should think of the countless European master bakers, hairdressers and carpenters, all of whom are grand masters of their craft, but by no means financial experts.

Jan Enno Einfeld is the managing director of Finiata, a fintech with a focus on short-term liquidity management for small businesses, the self-employed and freelancers. Finiata ceased business in Germany in March 2020 and, in addition to its core market of Poland, is now targeting markets such as Italy, Spain and Turkey for the coming years. The credit check is completely digitized and automated.

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