NA: Mind the Gap SME eBook

Maximize Value Across the Entire Customer Lifecycle

MIND THE GAP: The Need for Speedy, Accessible SME Lending In North America

TABLE OF CONTENTS:

SMEs: Underserved Economic Powerhouses

Global Snapshot: SME Lending Innovation

Navigating SME Loan Opportunities

The Five Trillion Dollar Gap

Case Study: Doruk Faktoring

Building Funding Bridges

Closing the Technology Gap: Your Risk Solution Checklist

About Provenir

SMEs : UNDERSERVED ECONOMIC POWERHOUSES

In the complex global economy, the unwavering heroes are Small-to-Medium-Sized Enterprises (SMEs), or Small-to-Medium Businesses (SMBs). SMBs are driving innovation, contributing significantly to GDP, and creating jobs in every sector in every market. Despite being the champions of the economic landscape, they’re still at the back of the line when it comes to getting fast, favorable access to credit. There is an enormous funding gap for SMEs - a global gap to the tune of at least $5.2 trillion annually, according to the International Finance Corporation (IFC). Overall, 40% of SMEs worldwide don’t have access to the funding they need to operate. While Canada is able to approve 90.8% of loan applications, the US still has a sizable lending gap. Canada’s small-to-medium businesses benefit from strong government support programs like CSBFP, credit guarantee schemes, and robust banking regulations that help banks reduce lending risk. Conversely, the US has a more complex banking system that is harder to navigate, despite SBA programs . In March 2023, the highest SME loan approval rate in the US was only 28%.

SMEs : UNDERSERVED ECONOMIC POWERHOUSES

This puts these essential businesses in danger of closing, while lenders are leaving multi trillion-dollar opportunities on the table. It seems like a win-win situation for SMEs and lenders, so why hasn’t it been seized? Historically, securing business loans from traditional financial institutions has been slow and difficult on both sides. Because determining creditworthiness and assessing risk for a business is more complex than it is for a consumer, the process is paperwork heavy, progresses at snail’s pace, and often results in low approval rates and high cost. Mix in regulatory standards, changing economic conditions, and evolving market demands - it can be hard for the typical provider to see an opportunity in SME lending. But with the introduction of advanced decisioning technology, powered by AI and a wealth of diverse data sources, SME lending has finally caught up with the times. Real-time SME lending is here. It’s fast, accurate, and accessible. And it’s making it simpler than ever for providers to catalyze and empower the enterprises we all rely on.

GLOBAL SNAPSHOT: SME LENDERS DRIVING INNOVATION AROUND THE WORLD

Worldwide ,roughly 90% of enterprises are small businesses and they represent more than 50% of employment.

UK + EU : 99% of all businesses 55% of employment MENA : 90% of all businesses 10-40% of employment LAC : 99.5% of all businesses 60% of employment NAM: between 97.9% and 99.9% 46 -63% of employment

APAC : 97% of all businesses 69% of employment

Clearco (Canada): Canadian lender Clearco seamlessly integrates and analyzes revenue data and evaluates the health of the business directly from an SME’s store and/ or bank account. Instead of looking at past performance like many other lenders, Clearco uses fundamental business data to predict future success and generates funding capacity accordingly.

NAVIGATING SME LOAN OPPORTUNITIES

The world of SME Lending is vast, and SMEs’ lending needs are as different as the businesses themselves. While that does add complexity to the sector, it also provides immense opportunity for lenders, who can choose the structure that works best for their goals and risk appetite.

Cash Flow Loans

Problem New businesses don’t have enough credit history for a traditional loan to fund everyday expenses

Solution Lenders evaluate future or

potential revenue to determine creditworthiness and offers

Loan Criteria

Past Performance

Future Projections

Business Models

Current Cash Flow

Market Conditions

Lender Benefits

Portfolio diversification, new revenue streams

NAVIGATING SME LOAN OPPORTUNITIES

Invoice Factoring

Problem SMEs don’t have access to

liquid capital to fund operations

Solution Lenders buy outstanding invoices at a discount and

collect directly from the SME’s customers, while advancing the SME the cash they need to run their business

Loan Criteria

Creditworthiness

Payment History

Quality of Invoices

Invoice Due Dates

General Financial Health

Lender Benefits

Reduced risk, portfolio expansion

NAVIGATING SME LOAN OPPORTUNITIES

Equipment Financing

Problem Buying equipment can be prohibitively expensive for

new and expanding businesses but necessary to operate

Solution Lenders provide financing to enable the purchase of

equipment, using the equipment as collateral

Loan Criteria

Credit History

General Financial Health

Business Stability

Sector Stability

Equipment Value and Usage

Lender Benefits

Reduced risk, cross-sell and upsell opportunities

THE FIVE TRILLION DOLLAR GAP

It’s clear that many lenders are successfully funding small to medium businesses across the world, embracing the many opportunities the sector has to offer. Yet many more still have not been able to overcome the challenges that keep the five trillion dollar funding gap from narrowing. We know that the process is complex, time-consuming, and inflexible, but why?

Without the right technology, it's an uphill battle to serve SMEs

The short answer is that traditional lending simply was not made for businesses. The pain points with legacy systems that scare providers away from SME lending still exist in consumer lending, but the processes are inherently simpler, faster, and cheaper because you’re dealing with less data, more standard risk assessment, and smaller loan amounts. Without the right technology, it’s an uphill battle to serve SMEs.

THE FIVE TRILLION DOLLAR GAP

It’s like the difference between navigating with a paper map and getting directions from a GPS. With a paper map, you have to plan your route manually, unable to account for traffic or other roadblocks - it’s very hard for you to get the full picture. If you take a wrong turn, you have to realize yourself and either find another route to take or double back to where you came from, adding time to your trip. You also may have to rely on multiple maps instead of just one, or search through an entire atlas to get from Point A to Point B. It’s not efficient and takes a lot of effort, especially because you have to drive while consulting your map. Now picture driving with a GPS: your route is optimized, you get real-time updates and directions from a single source, and your journey is smoother, your route is more accurate, and you can reach your final destination faster. And that’s why more SMEs are now choosing to work with alternative and digital lenders.

THE FIVE TRILLION DOLLAR GAP

TRADITIONAL LENDER Estimated Time of Arrival:

DIGITAL LENDER Estimated Time of Arrival: 24 HOURS to funding

10 WEEKS to funding

3 4

1. Application 2. Automated Decisioning 3. Approval

1. Application 2. Submit

3. Manual

Processing

Documentation

4. Approval

These lenders entice SMEs away from traditional credit options with simple, often digital, application processes, rapid decisions, and high approval rates. Leading fintechs have driven major innovations in the space, enabling digital providers to use technology that decreases approval times from months to minutes, without added risk exposure. And that leaves traditional lenders trying to compete, holding their paper maps.

CASE STUDY: DORUK FAKTORING

Flexible Platform Speeds Decisioning and Opens Door to New Offerings and Markets

“We now have a robust risk management system that also allowed us to create an early warning process so we can screen our portfolio daily, something that was impossible to do manually.” ILKER ARSLAN, BUSINESS ANALYTICS DIRECTOR

✓ Reduced approval process time from 30-60 minutes to under one minute ✓ Minimal IT support required during implementation and in production ✓ Time-to-value in under three months ✓ Expanded market to compete directly with banks for SME lending

✓ User friendly, flexible platform supports new risk tools and offerings ✓ Easily develop and run models written in native Python or R directly in Provenir, saving time and improving efficiency ✓ Ability to quickly integrate with different data types including credit bureau, web services and in-house databases

Explore the Full Case Study

BUILDING FUNDING BRIDGES: OVERCOMING THREE KEY BARRIERS

So how can all lenders embrace innovation and build lending processes specifically designed to quickly understand a business’ financial position and possible default risk? By breaking down three key barriers that keep providers from being able to meet the high lending demand for SMEs and narrowing that funding gap.

   Simplify the Application Process

Surveys show that on average, an SME loan applicant spends over 33 hours completing loan applications - time that could be spent running their business. One of the key benefits digital lenders offer is a simple application process. Business owners complete their applications online without the need for long forms, in-person visits, phone calls, or large amounts of paperwork. The customer experience improves, as applicants can track progress, submit supporting information, and get loan

BUILDING FUNDING BRIDGES: OVERCOMING THREE KEY BARRIERS

repayment terms all through online portals, no matter the complexity of the loan.

Reduce manual intervention

Powerful decisioning technology can automate the labor-intensive

tasks that would have fallen on both the business owner and the lender to complete. These tasks include automatically gathering and pulling relevant information from business documents, accounting data, and tax forms, completing fraud checks, assessing risk, and determining pricing. Automation lets lenders reduce manual intervention while offering personalized, relevant, and high-value product offerings. The process is tailored to each business and simplified for world- class customer experience.

BUILDING FUNDING BRIDGES: OVERCOMING THREE KEY BARRIERS

   Power Accurate Decisions with Streamlined Data

Before digital lending, SMEs’ need for speedy approvals and the lender’s need for accurate decisioning were often at odds with one another. With so much data to collect and parse through, the lender could either make a fast decision or one that reflected their risk appetite. That usually left applicants in an unstable position. Bypass the digging and manual analysis with intelligent decisioning powered by advanced, integrated data access and orchestration. Decision accuracy relies on information - data - that can help assess the risk of an applicant. But choosing the right data at the right time in your decisioning process can be difficult, especially if you’re still processing applications manually. And just because the data is available doesn’t guarantee that it’s either easily accessible or in a

BUILDING FUNDING BRIDGES: OVERCOMING THREE KEY BARRIERS

usable form. Or that you’re not ruining the customer experience by asking applicants to provide extra data for you. To deliver real-time decisions that support world-class SME lending experiences, you need to upgrade to a solution that makes it quick and easy to pull in the right data exactly when it’s needed. This means no longer relying on personal credit scores to decision business loans, but instead looking to business financial data, such as accounting documents and tax returns, to get a deeper understanding of business health and decisioning loans based on a prediction of future business success. When you have this volume of data and the technology to access, orchestrate and process it, you can implement risk decisioning tools that can accurately take an application from data to decision in under a second.

Data to decision in under a second

BUILDING FUNDING BRIDGES: OVERCOMING THREE KEY BARRIERS

   Stay Flexible

Small and medium businesses are vital to our economy, so when global uncertainty arises, they bear the brunt of the consequences. For lenders, risk goes up in an already riskier environment and legacy systems make it hard to adjust rules and models as quickly as markets shift. Providers must effectively manage their portfolios to maximize revenue and adapt to changing customer needs. To do that well, agility is key. That’s why business user-friendly, drag-and- drop UI is a game-changer for lenders, making portfolio management both simple and adaptable. By democratizing access to the decisioning platform, you can remain flexible, swiftly tweaking strategies in line with shifting customer needs and market trends. It’s not just about being efficient - it’s about staying nimble and responsive.

BUILDING FUNDING BRIDGES: OVERCOMING THREE KEY BARRIERS

By embracing this intuitive technology, lenders can better support their SME clients, ensuring they thrive even in uncertain times.

DIGITAL LENDER Estimated Time of Arrival: 24 HOURS to funding

1. Automated

3. Automated Pricing 4. Approval

Data Collection

2. Automated Decisioning