Small and Medium-sized Enterprises (SMEs) are globally acknowledged as a key success factor to grow the economy and reduce unemployment. The ability of SMEs to grow sustainably is dependent on their capacity to access finance, which has traditionally been the domain of commercial and retail banks. However, these institutions’ credit models are generally predicated on a history of banking behaviour and the extent of collateral – therefore SMEs, which may not have lengthy banking histories or collateral, are perceived as high-risk. SMEs are generally growth driven and therefore require banks to take an investment view, and not a credit view, of their business. The gaps between funders and SMEs are amplified for start-up businesses, which by their nature are already a high risk. This impasse between financial institutions and SMEs has led to a significant bottleneck to the growth of the economy.
One approach to improving SME finance is to focus on the managerial practices of the SME themselves, e.g. the use of software to manage cash flow, tighter managerial and financial controls, accounting software, etc. These are important risk mitigation factors that improve access to, and the cost, of finance. The advent of emerging technology and improved data access has led to the development of several solutions to better understand SME risk factors and develop mitigants for these. These solution providers include new entrants that are not banks. Although some of these mechanisms are not new, the use of technology has broadened their use and decreased the costs associated with these. Examples include:
- Specific funding solutions where the funder shares some investment risk with the SME, e.g. purchase order finance, import finance, trade finance
- Access to a universe of alternative funders, e.g. crowdfunding platforms
- Debtor sales, e.g. sale of invoices, invoice discounting, factoring
- Alternative credit scoring models, e.g. use of complementary data to build dynamic predictive models with machine learning that refines itself; use of macro and sales data of peers in the industry
Alternative credit scoring methodology for SMEs to access credit while de-risking the bank
A sophisticated and intuitive online `one-stop-shop` for alternative SME finance.
Platform for SME to sell invoices to potential investors
A highly reliable data driven solution to profile and lend to a customer in the shortest period of time
Comprehensive credit scoring system factoring financial, social, behaviorial and macro data to improve credit assessment and reduce delinquencies.
Credit to Small businesses
As always, please feel free to contact me for more information and/or to schedule a one-on-one meeting with the solution provider.