How do we overcome the Covid challenge of commercial lending to SMEs?

By David Lewis, CEO and Founder of Ranqx

Covid-19 is a major human crisis, which has claimed the lives of millions of people. It may seem insensitive to discuss some of the other issues brought about by this global tragedy, but they are now too pronounced to ignore. In particular, the economic consequences of the pandemic must begin to be recognized, especially as small businesses begin to feel the aftermath of its fallout more intensely.

THE TIPPING POINT

Economies around the world are beginning to see the lasting and extensive damage caused by the pandemic. As governments roll back emergency aid in favor of more measured, long-term approaches, the immediate threat to many businesses has increased dramatically. In particular, the problem greatly affects small and medium-sized enterprises (SMEs), which are often insufficiently supported by financial institutions, despite representing 90% of all businesses worldwide and employing more than 50% of the world’s population. [1].

To put this inadequate support in context, the World Bank estimates that the world’s micro, small and medium enterprises need an additional $5.2 trillion to meet existing unmet financing needs. [2]. Unfortunately, that number is about 1.5 times the current lending market for these businesses. [3]. The question for those looking to improve their performance in this area is simple: what caused such a gap?

Underwriting SME credit still relies on traditional manual processing, which can take several weeks, ultimately delaying the release of required capital. That needs to change, with lenders turning instead to tools that gather granular information about a business’s true viability, in real time. It may seem difficult, but by simplifying the data entry and evaluation processes used by banks and lenders, it becomes easier to manage risk and make better decisions.

SIGNS OF RECOVERY

If this change were to happen, it would happen at the best possible time. There is growing evidence that some SMEs are beginning to return to pre-pandemic levels of business activity. Still, many of these companies have a serious hangover from Covid-19, which will require help to overcome. By leveraging data more effectively, banks and lenders can accelerate the flow of capital to SMEs, while making more accurate decisions.

This is a long-awaited change, because according to Deloitte, even in 2022, “no traditional U.S. bank has the online capabilities to provide a direct digital loan application to small businesses for unsecured or secured loans with a decision or an instant offer to the customer’ [4]. That’s why the consultancy identified “the use of forward-looking data sources and state-of-the-art modeling techniques” as a notable solution to the problem.

A NEW DAWN FOR SME CREDIT LENDERS

Lenders want to lend more, but they can’t take more risk. So this movement towards better credit for SMEs needs improved intelligence, it also needs partnerships to help lenders. With new solutions, like ours, SME lenders now have access to real-time orchestrated data points, as well as digital origination and decision-making, meaning decisions can be made in minutes without any of the typical friction or staffing costs. . By enabling a seamless digital application process for SMEs, we are one step closer to revolutionizing the world of SME lending.

Clearly, technologies like ours help lenders better support SMEs. Plus, our platform features integration with a range of financial APIs, which do all the hard work, ensuring SME applicants have a quick and easy lending experience. Plus, with Ranqx, lenders have all the information they need to make high-quality, valuable lending decisions every time. Overall, the solution can help the world’s SMBs thrive.

TWO-WAY STREET

The good news is that banks and lenders are clearly committed to adopting such solutions. This means it will take a similar push from SMEs themselves to ensure the transition can happen as efficiently as possible. Specifically, companies 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 in a myriad of industries will soon benefit from more flexible loan arrangements, with vendors able to better assess some of the key principles of business success that were previously overlooked in the assessment process. credit. By doing so, businesses can begin to leverage more loan capital, which could prove crucial to ensuring the survival of many businesses.

For more information about Ranqx, please visit: www.ranqx.com

Authors biography :

An experienced industry contributor, Dave Lewis has advised numerous companies and boards including ANZ Bank, PwC and BNZ Bank on a customer-centric growth strategy. With over 25 years of experience in international business services, Dave is a proven expert and entrepreneur. Now Dave has launched Ranqx, a revolutionary financial information software for advisors, businesses and financial institutions.

[1] https://www.un.org/en/observances/micro-small-medium-businesses-day

[2] https://www.worldbank.org/en/topic/smefinance

[3] https://www.worldbank.org/en/topic/smefinance

[4] www2.deloitte.com/content/dam/Deloitte/us/Documents/consulting/small-business-lending-POV-2022.pdf

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