Two-thirds of SMEs are unable to secure financing due to limited access and choice in business lending

According to a new report by cloud banking platform Mambu, more than two-thirds (67%) of small and medium-sized enterprises (SMEs) worldwide have failed to secure adequate or unfunded at least one or more times.

The Small Business, Big Growth report surveyed over 1,000 SME owners worldwide who started their business and applied for a business loan in the last five years. It shows that dependency on personal networks has increased by 11% during the pandemic, with SMEs’ access to external capital shrinking.

Despite the boom in new SMEs being set up in the last two years, access to finance remains a persistent obstacle as 32% of these companies are struggling to raise seed capital, rising to 33% of SMEs that are about to be set up.

Almost half (43%) of SMEs had to rely overall on friends and family for loans, with this figure rising to 47% for companies started since March 2020 and for those starting soon increased to 48%. Of the SMEs that failed to secure adequate financing, 34% had cash flow problems, 33% could not bring new products or services to market, and 30% could not hire effective employees – a major impact amid the ‘Great Resignation’.

For larger SMBs with 101-250 employees, lack of access to finance has limited their ability to hire (40%), grow (36%) or pay for upgrades or improvements (36%).

Mambu’s findings come amid a surge in alternative lending as SMEs turn to challenger banks and fintechs to overcome common obstacles. The opportunity for new entrants is clear, as the vast majority (92%) of SMBs say they are willing to switch lenders for different or simpler digital support.

Almost half (49%) of SMEs cite better benefits and incentives when borrowing as the main reason for switching lenders. Meanwhile, 47% would switch to better financial options and 35% to improved digital services.

Demand for more digital options appears to be directly related to the pandemic. Two-thirds (66%) of both SMEs launched after March 2020 and those set to launch in the near future said digital services are an important consideration when making loans, compared to just 53% of companies that launched before were established on this date.

Eugene Danilkis, CEO of Mambu, said: “SMEs are the lifeblood of the global economy, responsible for growth, job creation and the post-pandemic recovery. But they face great challenges. Access to external financing has become difficult during the pandemic amid record demand for financing and increasing friction in the lending process. It’s no surprise that SMEs are willing to abandon ship for better, more accessible services. If lenders want to differentiate themselves, they must transform and modernize their finance experience to ensure SME success. This includes faster onboarding and lending decisions, leveraging the power of the cloud, and offering mobile and digital-first products.”

Financial institutions need to do more to deal with demanding loan application processes. The research found that the length of time it takes to apply for a loan has a major impact on SMEs when choosing a lender.

A quick application process was named by more than three-quarters (76%) of global SMEs among the top 3 most important considerations for securing external financing, coupled with long-term repayment terms (76%) and just behind low interest rates (81%).

In terms of improving the application process, the majority of SMEs expressed interest in faster loan decision processing (79%), more flexible loan terms (78%), tailored offers and services (76%) and little or no collateral requirements (75%) .

Richard Lim, CEO of Retail Economicss, said: “The pandemic has heralded enormous changes in the way we work, play and shop, accelerated the democratization of the digital and its effects are still having an impact on society. But access to capital is an area where digitization has matured much more slowly. All too often, companies looking to scale quickly and seize opportunities are stifled by exhaustive application processes. Stifled by slow and inefficient practices, current lending practices are no longer fit for purpose in today’s fast-paced, digital world.”

The most common obstacles to securing financing for SMEs are not enough seed capital (30%), too much paperwork and administrative burden in the lending process (28%) and the cash flow is not considered strong enough (27%). Two-thirds of SMEs are unable to secure financing due to limited access and choice in business lending

Fry Electronics Team

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