The SME loan journey: How can it be made easier?

The pandemic has accelerated the shift of products and processes online at an unprecedented pace, with technology playing a key role in driving that change. Consumers and businesses now demand that their providers must be able to cater their demands in a simple, quick and seamless manner.

For banks and financial institutions, more used to legacy systems, the pressure is high to adapt their processes in order to better cater to their customers – especially small and medium size companies (SMEs), which are seeking quick access to funds. Lenders that fulfil those needs right now stand to benefit in the longer-term.

“Needless to say, SMEs have a huge appetite for financing,” states Natalia Karbowska, banking industry consultant at IT company Comarch. “They need money to pay their invoices, run day-to-day operations, or to make their investments. And what is important is that they need that money fast. So, it’s no surprise that SMEs are often discouraged and intimidated by complex and lengthy lending procedures. And what do they do when they are nailed down by bureaucracy? They turn to fintechs or other non-banking lenders to get what they want,” she explains.

On the other side, banks are also a bit hesitant when it comes to SME lending, because while the process requires as much effort as it does for big companies, the return on investment is relatively lower.

“Borrower verification, rating, or business relations analysis requires a lot of time and it comes with a high risk because small and medium entrepreneurs often struggle to keep their heads above water. It may be even more complicated for startups as they may need initial funding without any promise for future business revenues. Hence they  are often seen by banks as problematic borrowers,” states Karbowska.

However, banks cannot afford to ignore small businesses, considering the significant role they play in the economy. In countries like the UAE, for instance, SMEs account for more than 94 per cent of the total number of companies operating in the country and provide jobs for more than 86 per cent of the private sector’s workforce, according to Ministry of Economy. In Dubai alone, SMEs make up nearly 95 per cent of all companies, employing 42 per cent of the workforce and contributing around 40 per cent to the emirate’s GDP.

Economic pressure created by the coronavirus pandemic in the UAE has put additional focus on banks’ low levels of lending to small and medium-sized enterprises, although a new credit guarantee scheme in Abu Dhabi is expected to boost lending in the emirate.

“To make both parties meet halfway, credit processes must be adjusted to reflect market needs. Financial institutions need tools that will mitigate their risk connected with the SME lending. They need software that can be easily integrated both with internal and external databases,” says Karbowska. Improvements around digital banking definitely could help make SME lending more attractive.

“Supported by PSD II and open API concept, this allows to automate all needed verifications, risk rating and credit scoring and collaterals. Automation and digitalisation of lending processes is key. It allows to speed up lending activities including pre-qualification, underwriting and credit decisions. That’s how banks can meet the needs of the SMEs – by significantly shortening time-to-money,” she adds.

Comarch’s Loan Origination for SMEs enables banks to accelerate their SME lending processes by over 30 per cent and grant simple loans within one hour. It allows for more efficient control of credit risk and automates the work of client advisors managing the credit-granting process, enabling banks to optimise SME lending end-to-end: loan simulation, application verification, analysis of customer financial situation, decision making and fund disbursement.

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