The Evolving Landscape of SMB Financing
There are 33.3 million small-to-mid-sized businesses operating
throughout the U.S., comprising the backbone of the country’s economy. Despite
being an economic lifeblood, accessing adequate financing remains a constant
challenge for small businesses, with nearly 77% of small businesses concerned about their access to
capital. This worry is merited with reports indicating that 38% of small
businesses shutter their doors due to a lack of working capital to help
maintain their operations.
In today’s shifting financial landscape, the need for innovative small business financing solutions is critical. Community financial institutions (FI) that are meeting this challenge through the seamless integration of technology, customer-centric approaches, and collaborative strategies are realizing positive results for their business banking clients.
Executing a successful SMB lending strategy
Delivering a seamless lending experience is essential for success in consumer
lending, and small business financing is no different. To achieve this across
both sectors, community financial institutions are leveraging a Lending-as-a-Service
(LaaS) strategy to drive more efficient underwriting and enhance digital
customer journeys, through an automated, data-driven process.
Compared with consumer underwriting, evaluating loan applications for small businesses requires additional data points and verifications including things like KYC/KYB, cash flow analysis, and debt-to-income ratio assessments. The challenge is in providing this level of scrutiny quickly and accurately. Speed is crucial as small businesses often need quick access to capital to seize market opportunities or address unexpected expenses. Accuracy is critical for FIs to ensure compliant, responsible risk management in their small business financing initiatives.
In the current banking environment where institutions find themselves seeking sticky deposits, FIs should prioritize small business lending opportunities within their existing customer portfolio. In many cases, individual consumer account holders are themselves small business owners who would welcome the opportunity to consolidate both their personal and business banking with a single trusted banking partner. Business bank accounts also tend to be “stickier” than consumer accounts – a key benefit for bankers who find themselves in a constant battle against deposit runoff.
Flexible access
Flexible real-time access to capital with management controls like variable
spending limits enables small businesses to leverage their capital effectively
and safely.
Rather than waiting for banks to be open and relying on ACH or wire transfers, small business customers with a Business Line of Credit (LOC) can secure instant access to funds by enabling payment card access. In addition to enabling fast and flexible access to working capital, small businesses have full control of the amount they draw from their LOC. This ensures that they only access the funds they need when they need them and aren’t fully exposed to potential internal fraud as they may be with a small business credit card.
Small business cardholders also benefit from 24/7 access to funds and a digital-first process from application to funding. These types of card services can provide small business owners with access to working capital anytime and anywhere enabling them to seize growth opportunities on demand, even outside traditional banking hours.
Supporting the millions of small businesses that drive the U.S. economy requires innovative financial solutions. By adopting new technologies that provide more flexible, real-time financing options, community FIs can better provide small businesses within their local communities with access to the capital they need to thrive.
About Author:
Will Tumulty serves as CEO of Rapid Finance, a
Bethesda, Md.-based fintech and provider of working capital to small businesses
in the U.S.