As lockdowns are extended, the economy is facing more and more setbacks to their progress and with the pandemic on a rage, businesses have an uphill battle to recovery. Some of the most affected are small businesses.
SMEs account for most countries’ GDP and not to mention, a lot of job opportunities. If they fall, the economy may fall, so maximum assistance should be given for their survival. Even before this pandemic broke out, SMEs saw $5.2 trillion in unmet needs across the globe according to the International Finance Corporation (IFC), this gap is to widen.
Traditional lending is not enough for today’s SMEs
Traditional lending takes too long to get approved and that’s not the worst of it as most of the SMEs may not even have the collateral especially those in fast-growing economies. Also, credit scores are another setback even if they can produce the necessary audited financial statements, tax returns, and five-year projections for the same.
Another way to get capital for SMEs
There has been an uprise in new fintech based lenders for SMEs that offer a new model of lending which is both time and cost-effective. They use advanced analytics platforms and artificial intelligence to get a more intricate understanding of SMEs. Also, SMEs have the option to share data they have and get credit in exchange. They can easily establish a businesses’ creditworthiness, evaluate their risk, and issue loans in a mere 24 hours. These advanced and innovative solutions will help unlock the full potential of SMEs.
In fast-growing economies, digital SME lenders, lend as little as $150 in countries like Africa. This helps franchise a whole new generation of entrepreneurs. Also, there’s been an increase in demand during this pandemic.
New partnerships that enable data exchange can greatly help bolster the future of digital SME lending. Regulators of respective countries, other tech giants, SME service providers, insurance companies, banks, financial institutions, and alternative lenders in other sectors of the economy should all collaborate to help in closing the existing SME credit gap. If all these partnerships worked out, along with government packages, the issues faced by the economy can be combated for the most part.
As this pandemic rages on, there is no estimate on what the economy will be like in the long-term. Loan applications have seen a major rise and this could stimulate an increased interest to see financial industry digitized ASAP. It’s a good sign to see that new and upcoming entrepreneurs will find it much more hassle-free to get the financing they need in a post-pandemic world.