Latest Trend: Practical Methods to Simplify SME Lending

Latest Trend: Practical Methods to Simplify SME Lending

January 19, 2021

Desperate Times Call For Creative Measures

Nowadays, the dullness of global markets is inflicting serious damage to almost everyone. On top of that, the damage taken is inversely correlated with how deep-seated those businesses are. Therefore, SMEs are in a great need for a financial lifeline support known as business loans.

For example, OECD’s report on Small and Medium Businesses states that in the UK, between the time period of March and May, banks lenders lend out almost three times more to SMEs compared to 2019. Thus, banks are somehow forced to work on solutions to make the lending process much more operable. They aim to disburden both parties from the time-consuming aspects of such transactions. This way, the much-needed loans can be evaluated quickly and the antidote can be conveyed faster.

 

Remove Friction via Digitalization

The global crisis has already initiated rapid digitization of many different branches of banking. Thus, a room for swifter data transfers has been quite noticeable. In Deloitte’s Digital Banking Maturity Report, the need for speed is repeatedly underlined. At this point, FinTechs with appropriated services gain immense importance. They can lay a valuable bridge between the bankings and SMEs, a bridge that ultimately forces a faster pace on the long-lasting operations. So, a third party with a more contemporary and practical approach to foster interoperability (among others) is kind of a necessity. This way, an outside source can remove friction for the SME lending process.

In that case, what services are viable to attain such end-result? What do small businesses and traditional banks need to function quicker and sturdier? The answers lie under the explanation about what efficiency is made of. SMEs, on the one hand, strive for a more guided lending application process. The banks, on the other hand, want to be liberated from strictly binding data collection and comparison activities. To be more precise, rules and regulations that stack up to make the lending process harder are what both parties try to avoid. At the beginning of 2020, a prophetical report by Jared Rorrer foresaw the issue clearly by stressing out some digitalization centred solutions to simplify manual processes.

 

A Possibility to Solve the Primary Tension

However, the issue can’t be sorted out by only improving the lending process. There is a fundamental tension within the whole operation for both sides. It derives from some natural tendencies of monetary affairs and it’s known as: Trust.

 

Within the execution span, mutual access to scalable information fosters a reciprocal trust. Eventually, each party faces a necessity to equip themselves via well-prepared documents. Small businesses are obliged to present a redemption plan whereby the banks are compelled to evaluate possibilities and report accordingly. Transparency through those transactions is highly beneficial for all since it prevents the relationship from taking any damage. Thus, an AI integrated neutral documentation system is much more practical. It simplifies the SME lending process by removing a vast amount of manual processes to gather information, along with its ability to construct an objective report for both sides.

 

Not only the relationship, but also the financial wellbeing of both sides is protected by a scalable report. Since it minimizes the risks by operationalizing a complicated transaction, banks can evaluate an approval or a denial on this basis. This gomedici paid report is a good resource to gain further insight. In the end, if a proper FinTech company is preferred, client experience, the bank’s overall reputation and financial conditions of each side are safeguarded in a practical way.

 

The Trend Is Up

Keeping all of these in mind, it is no surprise that globally renowned traditional banks prefer to co-operate with companies that provide those services. For example, HSBC announced that it’ll further it’s lending application process by the provided method since its benefits are mutually acknowledged. Bank of England is shifting to an Open Banking method for the sake of simplifying the lending process. However, this might require a monitoring function provided by an external API around the financial institution.

 

Conclusion

The current state of the world can be explained with an analogy of a person struggling to pave a way through an unknown jungle. Under such circumstances, SMEs are in a dire need to keep their businesses alive. Hence, lending processes gain enormous importance. Banks should discover practical methods to overcome the hardships of lending operations.

On this point, digitalization promotes a valuable contribution by disburdening both the banks and the SMEs from the heavy workload. Even more, it can be helpful to ensure a trust-centred relationship along with minimising the risks of lending. The world is experiencing a rapid shift towards this direction and few banks have already taken the important steps. Importantly, it is advisable to deal with this issue through a proactive mindset.

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