Despite being a key operational concern, the largest business segment of the European economy struggles to adequately access financing, which is essential to help companies expand, remain competitive, and in some cases, stay afloat. A mismatch between financing demand and supply is part of the reason for which SMEs cannot access financing which, in turn, is caused by the high risk profiles of borrowers who cannot meet lending requirements and lender’s strict requirements, high costs and a lack of a universal credit rating system.
Capitalizing on this mismatch, a number of new digital players, through varying operating models and propositions, have stepped up to develop accessible lending propositions that are tailored to SMEs. Specifically, by revamping the lending process, new digital SME lenders have become particularly attractive thanks to their seamless digital application processes, flexible terms & conditions and lean operating models. In addition to offering the required financing amount, new digital lenders also offer a broader suite of services such as integrated banking services, accounting solutions and financial insights and advice to SMEs.
However, to ensure a sustainable future of digital SME lending, a few challenges need to be addressed. Firstly, as the market matures, proper differentiation is required to retain market share and ensure pricing isn’t the sole deciding factor for clients. Secondly, lenders must adequately manage yield rates to maintain high quality of loan books and ensure sustainable returns. Lastly, young credit models have yet to show their long-term robustness and must ensure adequate risk management to avoid high defaults.
