How small businesses can navigate the market

In April 2024, the Small Business Administration unveiled the results of its annual scorecard, a crucial measure of small business contracting success.

SBA's scorecard revealed the U.S. government awarded only 28.4% of federal contract dollars to small organizations in 2023.

While progress was made since the year prior, that means the vast majority of federal, state and local funding went to large businesses.

The Government Accountability Office (GAO) has been forthright about organizations’ inability to easily and quickly access these funds, showing that the highest levels of the U.S. government recognize a need for change when accessing public dollars.

Hurdles in Accessing Funds

Often, small businesses find it challenging to compete with large businesses due to roadblocks in securing government grants and contracts. These roadblocks can be due to compliance or regulatory challenges, as well as being forced to work with limited resources as a small business.

For example, complex procurement processes and strict regulations pose significant challenges for small businesses in their quest to access and utilize grants.

As is, the existing process typically requires businesses to front costs and then be reimbursed, a task many small businesses can’t afford to do without taking on debt.

Beyond that, organizations receiving government dollars are subject to audits, which add another layer of challenges to the federal contracting process. While this has long been accepted as a norm by major contractors, the complicated process is a roadblock for many small businesses.

Let’s Get Digital

Organizations are turning to digital wallet platforms – a tool for rules-based purchases and payments through a tailored marketplace – to ease some of the burdens of decentralized fund management and navigate the various challenges.

As of 2024, 33% of NAICS-recognized businesses are selling their goods or services on digital wallet platforms.

Digital wallets are revolutionizing how small businesses manage funds by ensuring funding reaches them faster and more efficiently. By enabling direct pay to vendors, small businesses can make flexible and efficient purchases within the guidelines set by the awarding agency or organization.

In addition to making payments easier for vendors, digital fund management allows vendors to be vetted ahead of time. By streamlining record-keeping and auditing processes, digital wallets provide transparency and traceability for all financial transactions.

This “pre-approval” allows organizations to uphold necessary compliance and fiscal accountability requirements without constantly exchanging snail mail approvals and provides an added layer of security, reducing the risk of fraud and theft associated with traditional payment methods.

Collectively, these benefits contribute to greater efficiency, cost savings and improved financial management.

Driving Small Business Success

As federal, state and local governments continue investing more in small businesses to support growth and new jobs in key industries, technology will be vital to ensure the funding is accessible and managed properly.

This will create more lucrative opportunities for small businesses – businesses located in states that utilize direct pay through a digital wallet platform receive 26 times more revenue than businesses in states that do not.

By leveraging digital wallets, organizations can quickly cut through the delays caused by administrative requirements and automate compliance efforts for quick access to public funds and help level the playing field for small businesses seeking government grant funding.

Jamie Rosenberg is the CEO of ClassWallet.