Finance Top Stories

How digital strategy can help SME finance

Access to additional financing is essential for SMEs to build and expand their enterprises in today's cutthroat economy

Small and medium-sized Enterprises (SMEs) have supported economic growth and development during the past 20 years by generating jobs, making a significant contribution to innovation and technological advancements, and assisting in the reduction of poverty worldwide.

In developing nations, SMEs account for over 50% of employment possibilities and almost 90% of all firms.

Access to additional financing is essential for SMEs to build and expand their enterprises in today’s cutthroat economy.

Traditional banks have often been wary of giving money to these SMEs.

These businesses sometimes lack reliable accounting systems and necessary data, making it challenging for banks to assess their creditworthiness.

So, these SMEs go to alternate methods for getting financial support, such as pricey credit lines with exorbitant interest rates.

This is neither economical nor a long-term solution for these businesses. As times are changing, SME lending requires a quick digital strategy.

Traditional banks have made efforts to develop novel solutions on this front, but have failed so far.

Fintechs are not constrained by antiquated infrastructure and have the know-how to offer a solution.

A digital decisioning platform, for example, can be used by a fintech company to quickly examine the full data footprint of an SME and offer customized financial solutions.

By examining real-time data from numerous sources, (e-wallets, credit bureaus, and credit ratings), such a platform has been used, to evaluate the credit risk of an SME.

These data are widely available.

For instance, SMEs and their clients generate alternative data each time they use digital services, conduct bank transactions, send or receive payments online, utilize mobile devices, or manage their receivables and payables through a digital platform.

Lenders can more easily assess borrowers’ capacity and willingness to repay loans on a case-by-case basis with the help of this real-time, verified data.

Alternative data can be used along with a particular SME assessment approach.

Small businesses, for instance, frequently exhibit a higher degree of owner-centricity.

To create highly predictive blended scorecards that use business owners’ and managers’ payment histories combined with company credit data to build a more thorough risk assessment, it is, therefore, possible to mix personal and business data.

For SMEs, using alternative data can offer up new loan prospects, but this is not sufficient on its own.

Globally, central banks are putting into place regulations that require all banks to lend a specific portion of their credit portfolios to SMEs.

These adjustments are intended to ease the flow of money across the economy and lower the high cost of borrowing for a sector that is seen as a growth engine.

There is a global shift toward digital lending options.

By rethinking lending practices and easing access to capital, SMEs will be able to expand their operations and increase their market share.

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