The Lure of The Fast Lane: Why SMEs Turn to Online Alternatives
Breaking Down Barriers: Building the Self-Driving SME Loan
32% of SMEs now work with online lenders for business credit.
Traditional SME lending processes have one major problem: they were designed to assess consumer credit risk, not business credit risk. It’s like trying to determine how reliable a vehicle is based on the driver; while this may have an impact, there are a ton of other factors that determine how likely a car is to break down. To support SMEs with faster access to funds, lenders need to build lending processes specifically designed to quickly understand a business’ financial position and possible default risk. This means focusing on and fixing three key areas that prevent SMEs from experiencing a high-speed, ‘self-driving’ loan application experience:
Lenders lure SMEs away from traditional credit options with simple application processes, rapid decisions, and high approval rates. Over the last few years leading fintechs have driven major innovation in the SME lending industry, with digital lenders using technology to decrease approval times from months to minutes, without exposing themselves to undue risk. This increased competition for SME business poses a significant threat to lenders who delay innovation strategies. Not only do they risk losing potential new clients, but existing customers are also drawn away by the convenience offered by digital alternatives. Think of it like your grocery shopping experience – imagine filling up a shopping cart with a week’s worth of food and getting to the checkout to see there is only one cashier open, and that cashier is busy price-checking each and every item, weighing all the produce and chatting up the customer. Compare that to Amazon Go, Amazon’s latest ‘smart store’ invention, which features Just Walk Out Technology. It’s a checkout-free shopping experience made possible by computer chips, advanced sensors and deep machine learning. The tech keeps track of what you’ve removed from shelves and automatically charges your account when you’ve left the store. No lines, no unnecessary chatter, no waiting. Comparing the Approval Experience
1. Simplifying the Application Process
One of the key benefits digital lenders offer to SMEs 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. And it doesn’t stop there. Applicants can track progress, submit supporting information, and get loan repayment terms all through online portals. As a lender, it’s like you’re opening the door to a self-driven lending journey that gets your customers to their destination at record speed! To power a cohesive lending experience, lenders use powerful decisioning technology to automate the arduous 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. Surveys have shown that on average a business owner spends over 33 hours completing loan applications. With the right technology lenders can significantly reduce the amount of time businesses spend submitting applications and providing supporting documentation, simplifying the entire application process.
APPROVAL
APPROVAL
Hours
MANUAL PROCESSING
AUTOMATED DECISIONING
SUBMIT DOCUMENTATION
APPLICATION
APPLICATION
Traditional Lender
Digital Lender
It’s easy to see why online lenders are so appealing to SMEs looking for funds. But, how do alternative lenders manage to compress what has traditionally been a long, paper heavy, and manual process into a slick and quick online application experience? Innovative fintechs and banks have found ways to use technology to break down the barriers that prevent loan applications from moving swiftly and efficiently through the decisioning and underwriting process. (Basically a risk decisioning version of Amazon Go.)
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