How technology can support SME lending in the age of COVID-19

SME lending challneges overcome with technology

Anders la Cour, Chief Executive Officer of financial infrastructure provider, Banking Circle, discusses SME lending options in the age of the pandemic, and how technology helps overcome traditional funding challenges.

The COVID-19 environment has brought about a host of new challenges for the UK’s small businesses. Arguably, one of the most pressing being, how to access funds to remain afloat. With a fifth of all UK SMEs predicted to run out of cash during the current crisis, it is an area which needs support, and fast. 

Although banks are doing all they can to help businesses through the pandemic, standard lending solutions and practices are generally not geared towards SMEs, or the current climate. For example, identification checks can take months to complete, and funds distributed to successful applications may take even longer.

In order to ensure the survival of the UK’s SMEs, the backbone of our economy, we therefore need to see the industry change its practices to make financial inclusion and lending for them a priority.

The traditional issues 

For SMEs looking to take out a loan in the current climate, one of the primary issues facing them is the time taken to become verified and accepted. The general industry average for clearing a loan is 60 days, and this is a pre-COVID-19 figure, meaning applications today are likely to be higher (and verification timings longer) than this. 

The key issue is that many traditional banking players simply lack the underlying technology infrastructure required to increase the number of applicants they can process, or the speed in which this can be completed. This means that even if they wanted to ramp up their SME loan support, they are unable to do so.

Faster funding through more flexible tech

To solve these challenges, a shift in focus for banks and payments providers towards a more customer-first approach is needed. This requires legacy infrastructure to be updated or replaced with more modern, flexible alternatives that are better able to meet the needs of the SME.

But, with Euromoney estimating that the total cost of maintaining legacy systems, investing in new systems and paying IT staff amounts to anywhere from 15% to 25% of a typical bank’s annual budget, this is not something many banks can afford – especially in the current climate. As a reaction, we’re therefore seeing an increased shift towards a financial utility model, where financial infrastructure providers like us are supporting banks and payments companies by giving them access to the latest cutting-edge technology that enables them to focus on better serving their end customers.

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Importantly, this enables banks and payment providers to come up with innovative solutions for SMEs, knowing they now have the underlying technology to execute it. This can include lending propositions that are built and designed with the flexible requirements of the modern-day small business in mind; enabling the ability to calculate loan requirements, receive confirmed offers (and then funds) in just a matter of hours.

This flexibility; such as being able to repay money based on cashflow, is extremely important for SMEs. Especially at a time where their income is extremely likely to be significantly lower than normal.

A road to greater financial inclusion

SMEs have traditionally found it harder to become as financially included as their larger peers. The current environment however provides a great opportunity for the payments and banking industry to evolve this position.

There are 5.9 million SMEsin the UK, and losing even just a small proportion of these over the next few months could significantly hinder the wider economy. It’s therefore in everyone’s interest that the technology processes are in place to ensure that a business, no matter its size, has the ability to apply for, and access funds to keep its operations going. And this should not just apply to the current COVID-19 environment, but become standard industry practice. 

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Anders la Cour

Co-founder and Chief Executive Officer of Banking Circle, Anders la Cour previously worked as a technology and financial M&A lawyer at a tier one law firm in Copenhagen.

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