Many small and medium sized enterprises (SMEs) get left out in the cold when it comes to funding because lending to SMEs has its challenges. Risk is usually higher and returns generally lower. Why go there?
Well, for starters there are a great deal more SMEs out there – they account for 99.9 percent of US firms. It would seem that there’s big business in small.
Banks recognize the opportunity. Loans to SMEs were severely hit by the 2008 financial crisis but large banks are slowly starting to lend again. Regional banks, on the other hand already do much to meet the SME funding need – while big banks approved only 23 percent of the SME loan requests received in June, regional banks granted nearly half (48.8 percent).
They’d like to do more. But a regional bank acquaintance I spoke to recently told me it faces three significant obstacles to serving the SME market:
- The website isn’t geared up to run credit applications for SMEs
- There is one credit policy for both SME and large commercial loans
- The underwriting process isn’t automated.
Automation and simplification can turn this around with:
- A simple loan application form on the website linked to a digital underwriting process
- A simpler underwriting process that’s appropriate for SMEs. Alternative lenders have this. The scope of risk is different with SMEs so the process needs to fit the situation. The good news is, that it’ll be quicker and simpler to create the right workflow with a digital solution in place
- Full automation with minimal underwriter interaction. From data collection (via the website), through data enrichment (using risk engines) to an automated decision that’s presented to the customer within hours if not minutes.