Bridging the Gap in SMB Lending - The Importance of Technology Adoption

Nina Barango joins Railz as Demand Generation Marketing Manager
May 10, 2023
Bridging the Gap in SMB Lending - The Importance of Technology Adoption

The commercial lending industry plays a crucial role in supporting the growth of small and medium-sized businesses (SMBs). However, a significant gap exists, as only 42% of SMBs had their financing needs met in 2021. This gap stems from various challenges making it difficult for SMBs to access the funding they need for growth and expansion. Technology adoption is instrumental in bridging the gap in SMB lending, enabling greater accessibility and efficiency in financing for these businesses. This blog post will explore some of the challenges in SMB lending, the importance of technology adoption in the SMB lending landscape, and how it is transforming the industry.

Challenges in SMB Lending

Underwriters and small business owners are equally frustrated with the modern-day loan process. SMBs want faster and easier access to capital, but they face several roadblocks when trying to apply for loans from lending companies, including:

Manual application process: The process of applying for a loan can be complex and time-consuming for small business owners, making it difficult for them to navigate the process and provide the necessary documentation.

Having a limited credit history or significant assets to serve as collateral for a loan, makes it difficult for lenders to assess the risk of the loan. Oftentimes, personal credit is used for underwriting, and some businesses shy away from applying.

Lenders may have stringent underwriting standards that small businesses may not meet, making it difficult for them to qualify for a loan. According to the Small Business Credit Survey, 32% of potential borrowers choose not to apply because of strict lending requirements.

Underwriters also face challenges in evaluating, approving, or denying loan and credit requests from SMBs, including:

Manual data gathering: Collecting financial data from various sources is time-consuming and prone to errors

Inconsistent financial data: Reconciling and merging data from different sources can be challenging, leading to inaccuracies in decision-making

Time-consuming analytics: Assessing the creditworthiness of SMBs requires extensive analysis, which can delay loan processing

This results in hours of administrative work, operational inefficiencies, and limited portfolio coverage for lenders.

The Importance of Technology Adoption for Lenders and SMBs

As the demand for SMB loans continues to surge, it's crucial for lenders and underwriters to adopt technology that helps streamline their operations and close the funding gap. Here are some ways technology addresses the challenges faced by SMBs and underwriters in the lending process:

Improved efficiency and decision-making: One of the key benefits of technology adoption in SMB lending is the use of real-time and forward-looking data for improved efficiency and confidence in underwriting decisions. This enables lenders to better predict borrower outcomes and drive credit decisions, ultimately leading to more accurate risk assessments, fraud reduction, and tailored loan offerings.

Streamlined processes: Open Finance-enabled technology allows for the efficient delivery of business data via APIs, reducing the reliance on manual data collection methods like PDFs, emails, and spreadsheets. This streamlines the underwriting process and enables lenders to make more informed decisions.

Enhanced creditworthiness assessment: Advances in AI and data analytics enable lenders to better assess the creditworthiness of SMBs with limited credit history or collateral, which often face loan rejections from traditional lenders. This reduces the reliance on personal credit for underwriting and helps address the financing needs of SMBs that may have been overlooked by legacy lenders.

Faster processing and access to capital: Technology-driven lending platforms can significantly speed up the loan application and approval process, allowing businesses to obtain capital more quickly. This is particularly beneficial for SMBs with time-sensitive financial needs or cash flow management challenges.

Better customer experience: Technology-driven lending platforms simplify the loan application process, making it easier for small business owners to navigate and provide the necessary documentation. This results in a more user-friendly experience for SMBs seeking loans.

By leveraging digital solutions, lenders can improve efficiency, reduce costs, and better serve the financing needs of SMBs, ultimately contributing to their growth and success.

How the Railz API Helps

The Railz API provides a single connection to all major accounting services providers, banking, and eCommerce platforms, such as QuickBooks, Xero, Sage, Shopify, and Square. This enables underwriters to access real-time financial transactions, reports, analytics, and insights on business customers, eliminating the need for manual data gathering and reducing the risk of errors.

For example, Corl, a revenue-based financier, uses the Railz API to access real-time accounting data to automate their financial underwriting process. Railz allows Corl to sync up with their customers' online accounting software and populate financial data in an efficient manner. By integrating with the Railz API, Corl can collect, normalize, and analyze financial data from multiple sources, including major accounting services providers, banking, and eCommerce platforms. This eliminates the need for manual data gathering and reduces the risk of errors, leading to more accurate and efficient underwriting decisions. 

The results:

  • Over 30% increase in loan applications
  • A 1.9% delinquency rate for originated loans
  • Significantly reduced wait times from 1-2 weeks to as little as 10 minutes

With the Railz API, underwriters can make faster and more informed decisions about the creditworthiness of businesses, optimize the credit approval and monitoring process, streamline the loan origination and servicing process, and provide real-time visibility into loan status and performance. This ultimately results in faster loan approvals, higher loan portfolio quality, improved borrower satisfaction, and lower delinquency, default, and charge-off rates.

‍Contact us to learn more about how Railz can help you streamline your lending processes!

Nina Barango joins Railz as Demand Generation Marketing Manager
Demand Generation Marketing Manager

Nina Barango is an experienced demand generation manager with a proven track record in the fintech industry. Having worked with startups and SMEs, she brings a unique perspective and understanding of how to drive results and growth effectively. A valuable asset to any team, she is dedicated to helping her company succeed.