Economies around the world are beginning to see the lasting and considerable damage caused by the pandemic. Notably, the issue is greatly affecting small-to-medium sized businesses (SMBs), who are often inadequately backed by financial institutions, despite accounting for 90% of all companies globally and employing more than 50% of the world’s population.
To put this inadequate backing into context, The World Bank estimates that the world’s micro, small and medium-sized enterprises need an additional US$5.2tr to reach existing unmet finance needs. Unfortunately, this number is roughly 1.5 times the current lending market for such businesses. The question for those looking to improve performance in this area is simple – what has caused such a big gap?
Simply put, SMB credit underwriting still relies on traditional, manual processing, which can take many weeks to complete, ultimately delaying the release of the required capital. Here, Dave Lewis, CEO and Founder of Ranqx, a fully digital loan origination, decisioning and monitoring platform explains why the time is now for lenders to pivot to tools which garner granular insights into a business’ true viability in real-time.
Dave Lewis (Full Interview)
Q: What are the biggest issues for SMBs and access to financial services?
A: Businesses often find it difficult to get the working capital they need to grow. Right now, there is too much friction between SMBs and financial services providers, with red tape and tough terms making the process tedious and costly. Alongside this, many banks often struggle to offer a seamless, customer-centric, and efficient service to customers.
When combined, you begin to see the difficulties that SMBs face. However, by offering frictionless digital application processes to these businesses, we’re able to overcome some of those difficulties, which in turn makes the solution valuable when looking to improve things like rates of productivity and employment within the broader economy.
Q: What could be the consequences if the prior isn’t addressed?
A: We are entering a new era of trends and opportunities within the field of SMB lending. The economic impact of the Covid-19 pandemic was vast, and has severely affected the credit lending market, especially for SMBs. However, as nations around the world look to rebuild, these businesses will be required to play a vital role. To ensure they can fulfil this opportunity, SMBs are going to need improved levels of credit lending.
The Covid-19 pandemic also gave rise to millions of new SMBs around the world, with up to six million new businesses started in the US alone. These so-called ‘Covidpreneurs’ are often unbanked, which unfortunately puts them in a difficult position when it comes to securing lending and working capital from financial institutions.
As pandemic-related government schemes begin to wind down, major banks will likely be reluctant to go overboard in the lending market, which further compounds this issue. Sadly, this problem could lead to underfunded SMBs, which would mean more job losses and failed SMB ventures, all of which would have a negative impact on the broader economy.
Q: How important is data when it comes to delivering financial services to SMBs?
A: All lending decisions are based on data. Across every decision, the lender wants to know exactly who they are lending to, why they need the capital, and how quickly it will be repaid. Therefore, it’s essential for those in the field to have the most recent and thorough sources of business information, which will help them to make consistent and accurate decisions.
By simplifying the data capture and assessment processes, which banks and lenders have previously used to collect information on businesses, Ranqx is solving the issue of credit backlogs, and lengthy timescales on decision making. Our solution can be integrated with a range of APIs, which do all the hard work, ensuring that SMB applicants enjoy a quick and easy lending experience. What’s more, with Ranqx, lenders have all the information they need to make high quality, valuable lending decisions every time.
Q: Why Ranqx? Why now?
A: I launched Ranqx in 2015 after seeing a gap in the market for a financial insights software, which was tailored to banks, businesses, and advisors, with a focus on supporting SMBs. The pioneering tool we brought to market was highly innovative and allowed businesses to see performance insights and benchmarking statistics in real-time, making it easier for SMBs to garner success, quickly.
In 2019, we made the decision to pivot to a SMB lending platform. This decision was driven by the realisation that it was too difficult for SMBs to access the capital they needed from banks in a timely manner, partially due to inefficiencies in the processes that banks and lenders deployed when underwriting credit for these businesses. Ultimately, there was a clear disparity in the accessibility of financial services between SMBs and larger corporations, and we believed it was time to close that gap.
Q: What one thing would you change immediately about the current SMB banking/lending space?
A: The first thing I would change is the speed of digital transformation happening within banks. Companies in the field can already leverage an automated collection of new data sources, but often overlook the opportunity to orchestrate this data into customer-centric loan origination solutions. This is totally misguided, especially in a market with a shallow talent pool of labour. By embracing tech-first solutions, banks can work around this challenge and begin to help other important markets, such as SMBs to also grow.
Q: How will Ranqx help make the world a better place?
A: Quite simply, by using Ranqx, banks and lenders will significantly accelerate the flow of capital to SMBs, which has immense economic benefits around the globe. By better funding SMBs, the world can expect to see greater levels of employment, along with rises in productivity. All in all, our solution can help to create a more efficient economic environment.