
how is digital lending transforming the sme landscape
Fast Loans for Fast TimesBy combining financial know-how with technology, fintechs have the potential to transform the fortunes of many small and medium-sized enterprises (SMEs) by approving loans more quickly, and giving more SMEs access to the funds they need to expand.
The Disproportion
SMEs represent
a significant part of the global economy, accounting for nearly 90% of all modern businesses, and contributing significantly
to the creation of jobs and to economic growth. The European Union is
home to 24 million small and medium-sized enterprises, representing about 99.8% of all companies and employing 93
million people that account for two-thirds of total employment. According to
the US Small Business Administration, SMEs make a vast majority of US
companies as well, a total of 99.7 percent.
SMEs are the backbone of most economies, keeping them functioning and
developing an entrepreneurial spirit.

However,
despite their essential role, SMEs receive a disproportionately small share of
credit from the financial system, a trend that persists across developed and
developing countries. It is estimated that 40%
of SMEs globally have an unmet financial need, and according to the CGAP
report, the global opportunity for SME credit is estimated to be around $8 trillion.
SMEs are
often associated with higher risks, sizable transaction costs, and a lack of
collateral. Obtaining a loan for a SME is often a burdensome process, with a low level of transparency, and high
costs associated with searching for a loan. Traditional lending simply isn’t
cut out for the needs of a small business. So, this is where digital lending
comes to the rescue.
What Is Actually Digital Lending?
Digital
loans are often small, short-term loans provided by fintech lending companies
to persons or businesses in need of fast access to capital. The whole lending
process is digitized and performed
remotely, frequently through the mobile phone. That’s why they are
sometimes also called mobile loans.
Digital
lenders use various online channels and tools to engage new and existing
customers, feeding their digitized data, such as bank statements, e-commerce
transactions or mobile money payments, into algorithms and analyzing it to
predict willingness and capacity to repay a loan. After the approval, loans are
disbursed and collected remotely, again through digital channels, such as bank
accounts, e-commerce accounts, or mobile wallets.
How Is Digital Lending Helping SMEs?
Digital lending has made the lending processes quick and easy for SMEs by using bots and specifically designed algorithms to gather all the relevant information from private and public sources facilitating minimum paperwork.
Application
assessments are quick and extremely accurate
and unbiased, due to a minimal need for human intervention. This allows
lenders to offer loans at lower interest
rates without any guarantor or collateral.

And
finally, as digital lending makes strong use of technology, the safety of financial information and
sensitive details is not compromised. In short, with lower interest rates,
uncompromised security and quick access to funds, digital lending is helping
SMEs expand and ultimately thrive.
The Future of SME Lending
Small businesses have unique needs and demands that can become more complex as a small business grows. Those needs aren’t being addressed by the traditional forms of lending and banking, however technology advancements are allowing better SME financing options to come forward.
Where previously SMEs were left waiting for financial support during testing times, they can now access the funds needed within the day, helping them flourish even when unforeseen difficulties crop up.
As competition has increased and technology advances, some banks are already redeveloping their products and offerings to help small businesses in order to keep their share in the market.