Recovery Time: How Do We Overcome the Covid Challenge of Commercial SMB Lending?
Covid-19 is a significant human crisis, which has claimed the lives of millions of people. It may seem insensitive to discuss some of the other problems induced by this global tragedy, but they are now too pronounced to ignore. In particular, the economic consequences of the pandemic must begin to be acknowledged, especially as small businesses start to feel the aftereffects of its fallout more acutely.
The Tipping Point
Economies around the world are beginning to see the lasting, and considerable damage caused by the pandemic. As governments wind back emergency support in favour of more measured long-term approaches, the immediate threat to many businesses has increased considerably. Notably, the issue is greatly affecting small-to-medium sized businesses (SMBs), who are often inadequately backed by financial institutions, despite accounting for 90% of all companies globally, and employing more than 50% of the world’s population [1].
To put this inadequate backing into context, The World Bank estimates that the world’s micro, small and medium-size enterprises need an additional $5.2 trillion to reach existing unmet finance needs [2]. Unfortunately, this number is roughly 1.5 times the current lending market for such businesses [3]. The question for those looking to improve performance in this area is simple – what has caused such a big gap?
SMB credit underwriting still relies on traditional, manual processing, which can take many weeks to complete, ultimately delaying the release of the required capital. This must change, with lenders instead pivoting to tools that garner granular insights of a business’ true viability, in real-time. This may sound difficult, but by simplifying the data capture and assessment processes used by banks and lenders, managing the risk and making better decisions becomes easier.
Signs of Recovery
If this change was to occur, it would be happening at the best time possible. There’s growing evidence that some SMBs are beginning to return to pre-pandemic levels of business activity. Still, many of these companies have a sizeable Covid-19 hangover, which will require help to overcome. By leveraging data more effectively, banks and lenders can accelerate the flow of capital to SMBs, while make more accurate decisions.
It’s a long overdue change, as according to Deloitte, even in 2022, ’not one traditional US bank has the online capabilities to provide a straight-through digital small business loan application for either unsecured or secured loans with an instant decision or offer to the customer’ [4]. That is why the consultancy identified ‘the use of forward-looking data sources and cutting-edge modelling techniques’ as a notable solution to the issue.
New Dawn for SMB Credit Lenders
Lenders want to lend more, but they can’t take on more risk. So, this movement towards better SMB credit needs improved intelligence, it also needs partnerships to help lenders. With new solutions, like ours, SMB lenders now have access to real-time, orchestrated data points, as well as digital origination and decisioning, which means that decisions can be made in a matter of minutes without any of the typical friction or people costs. By enabling a frictionless digital application process for SMBs, we’re a step closer to revolutionizing the world of SMB lending.
Clearly, technologies such as ours are helping lenders to better support SMBs. What’s more, our platform incorporates integration to a range of financial APIs, which do all the hard work, ensuring that SMB applicants enjoy a quick and easy lending experience. Additionally, with Ranqx, lenders have all the information they need to make high quality, valuable lending decisions every time. All in all, the solution can help the world’s SMBs to thrive.
Two Way Street
The good news is that there’s clear buy-in from banks and lenders to adopt such solutions. This means there will need to be a similar push from the SMBs themselves to ensure that the transition can happen as efficiently as possible. Specifically, businesses of this size will need to be more receptive to concepts like open banking and permissioned data sharing to help make the process frictionless.
If this is to happen, businesses across a myriad of sectors will soon benefit from more flexible lending agreements, with providers able to better assess some of the key tenets to business success, which have previously been overlooked in the credit assessment process. In doing so, companies can begin to take advantage of more lending capital, which could prove crucial in securing the survival of many businesses.
Originally featured on Global Banking and Finance Review.
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