A lack of agility and transparency among traditional lenders has hampered smaller businesses for too long – but new technology is set to unlock their growth, writes Chris Roberts, head of origination at Code Investing
Smaller firms have found it hard to access finance from banks for many years, but times are changing and the world of SME borrowing is going through a quiet revolution. Fintech providers are building efficient platforms to make the process far more straightforward.
Many banks no longer understand their corporate customers, even those that have shown them great loyalty. One reason for this has been a lack of relationship managers who’ll actually be in place long enough to develop a relationship.
When you factor in some banks’ outdated systems and complex decision-making processes, it’s a wonder that anyone gets funding at all. Opaque banking processes, confusing requirements and the lack of an expert adviser also mean that SMEs won’t always know the best way to raise capital.
Time and resources
If you’re a bank customer who’s seeking to borrow from it for the first time, the application experience can be especially frustrating. The bank will say: “Tell us about your business,” and you’ll reply: “You should already know my business.”
One entrepreneur told me that he couldn’t tell whether his bank had an appetite for any business in his sector. This had deterred him from preparing a business plan and figures, despite having borrowed from it before. Frequent changes to its credit policy and a lack of clarity had made the process too laborious.
It’s not surprising, then, that a high proportion of SMEs seeking finance from their banks will simply give up trying if they cannot raise the sum they wanted or were led to believe they could borrow. This is not only bad for growth on a micro level; it’s also an inefficient use of time and resources on a macro level.
SME owners don’t have the time or resources to operate under a cloud of doubt, while no funder should be making a credit decision without the aid of a high-quality information pack. Can this divide between SMEs and banks be closed?
Through the intelligent dissemination of information, fintech providers are doing just that by taking the uncertainty out the fundraising process – and they’re fast becoming the go-to resource as a result.
Imagine simply entering your business’s financial requirements into an app and getting an immediate response matching you to several potential lenders.
The new Open Banking rules on data-sharing are making such an innovation not only possible but inevitable, enabling finance providers to use application programming interface (API) technology to draw detailed information about your business from across the web.
In the not-too-distant future there will be a highly efficient marketplace that sends indicative terms from a range of funders straight to borrowers’ mobile screens.
In a similar way to how we use comparison sites to search for personal insurance or mortgages, there will be sophisticated SME-focused platforms that know your business and its needs.
The transparency that’s so important in effective fundraising will work both ways. The new platforms will be able to display and compare multiple funders’ indicative terms, completion statistics and feedback, while also providing a central record of an applicant’s historical accounts, forecasts, actuals etc.
They will retain data about each business or use APIs to obtain it from other sources. This will make it simpler for SMEs to apply to multiple lenders for finance via one channel. Future lending requests by a firm will be simplified, as its information will be retained by the platform.
Fintech providers will work hand in hand with company accountants and corporate finance advisers to support business growth by improving transparency and communication in fundraising. Together, they’ll remove barriers that have persisted between financial institutions and SMEs for years.
Visit codeinvesting.com for further information