Four Factors Driving SME Lending

The commercial lending industry has undergone considerable change. With low interest rates coupled with a more stable financial environment, we’ve seen tremendous growth with new opportunities for both lenders and the businesses they support, particularly small to medium size businesses (SMEs).

Overlooked in the last few years due to stagnant growth, SMEs are now considered an important factor of the U.S. economy, which makes sense. Entrepreneurship rates in the first quarter of 2018 neared peak levels following the recession, according to new research from Paychex. The report, “Accelerating the Momentum of American Entrepreneurship,” shows that the rate of entrepreneurship grew steadily for several years following the recession in 2009, moderated from 2014 to 2016, started to accelerate again last year, and nearly reached its highest level since the recession in the first quarter of 2018.

It is not surprising, then, that SMEs have become a key focus of the lending market. In fact, we’ve seen a rise in new lenders as well as traditional players re-evaluating their business models to better serve this group and gain competitiveness.

Looking ahead, we see four key factors that are motivating SME lenders and shaping the wider industry as a whole:
  • Customer loyalty: What does loyalty mean in today’s world, and what drives it?
  • Regulation: In an ever-changing environment, how are lenders reacting to regulatory changes and what impact does this have on their processes?
  • The role of the digitally-enabled lender: What does this mean for the lender/client relationship and the engagement model, and what are the new responsibilities of the lenders?
  • Growth rate of the SME market: As this market continues to expand, how can lenders support SMEs adequately and successfully?

However, what will further propel SME lending is data.  In our latest whitepaper, we explore the types of data available and those used for SME lending, the value that digitization brings to SME lenders and their customers, and the key challenges that lenders face on the digitization journey.

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