SMB lending data

SMB lenders need better data, now more than ever

As the COVID-19 pandemic threatens millions of small businesses, SMB lenders are on the front line trying to help keep them afloat. Here, we look at how banks can adapt their ways of working, utilizing the very latest financial data assets and technology, to meet a challenge no one predicted.

Before it was important. Now it is a matter of survival. 

The COVID-19 crisis has created an extraordinary need for extra financing to prop up the World’s small and medium-sized businesses. 

The UK government has announced a £330 billion rescue package to reinvigorate the ravaged economy, some of which has been reserved for Britain’s SMB community. In the US, similar schemes have been launched to protect the livelihoods of workers of the tens of millions of businesses that have been impacted by the crisis.

And yet, the numbers of workers signing on for unemployment benefits or being furloughed is truly staggering. A true indication of the pressure businesses are facing.

Lenders need to adapt the way they work if they are going to remain relevant in a very different World. We believe our intelligent accounting integrations can help deliver clarity and efficiency to a market facing many new (and old) challenges.

What does COVID mean for lenders?

  1. Massive increases in application volumes – SMBs have flooded forward in their millions to request financial support and yet most lenders do not have the systems and processes in place to deal with this volume surge. Lack of automation and extensive manual underwriting requirements also putting pressure on the lender.
  2. Lack of understanding of portfolio health and the risk of default – Reliance on outdated sources of financial data is a crucial issue for the lending industry. Banks simply don’t understand the financial health of their customers well enough and they struggle to mordernize their antiquated processes in order to deliver real-time risk insights.
  3. Caution regarding capital allocation limits – In most major economies, banks are obligated to hold funds in reserve. Given the new wave of loan applicants have muddied the risk picture (due to rapid onboarding with limited financial analysis), it has become harder for them to know where to set these limits, potentially being overly cautious and missing out on $millions in missed opportunity.
  4. Rethinking collection strategies – A limited view of their borrowers’ financial health makes understanding which clients require forbearance and which don’t even trickier.

To be successful, the banks need to ensure their “COVID-reaction” is also thinking about the long-term picture.

By using the latest technology and intelligent data sources, such as real-time Management Account data, they can instantly make faster, smarter loan decisions. They can automate key processes and they can digitize the entire lending journey for SMBs (as we have already seen in the consumer market). Crucially, this will help them meet the urgent demands of SMBs both now and in the future.

SMBs: Risk vs. Opportunity

Before the current crisis, lending to small businesses presented something of a quandary for banks. 

On the one hand, SMBs are a vast and largely untapped market: Smart, agile businesses crying out for a cash injection to help them get off the ground. But, on the other, they are often low-value, risky propositions with a prohibitively high cost of service. Many lenders have traditionally steered clear of small businesses altogether and focussed on much bigger clients where margins are higher and risk reduced. 

Now, almost overnight, they have gained a much-changed portfolio. 

Lenders need to find a quick, painless solution that provides them with all the data and insights they need to make accurate, low-risk lending decisions in a new and unpredictable market and monitor the health of their portfolio going forwards. 

The problem is, no two SMBs are the same. Some have chequered financial histories and worryingly uncertain futures. 

Increasingly, banks are turning to technology to do some of the heavy lifting and speed up the lending journey. But crucially, they need to modernize their approach to data as well as technology, if they are to succeed. 

The value of intelligent integrations

If you are going to use technology to power your SMB lending decisions, it makes sense to maximise the value of the data you are accessing at the same time.

The widespread adoption of APIs is powering the movement of data like never before.

Automating the gathering, consumption and surfacing of accounting data creates a purely digital workflow that makes structured financial data immediately available for analysis – and in the current climate it is essential to streamline processes for users on both sides of the lending journey.

But the data received by lenders must be fit for purpose if it is to offer any value.

Assessing the financial health of SMBs can be difficult at the best of times. The key is to find a technical solution that provides the digital efficiency gains you require (by removing manual processes), while offering enough insight to inform your risk outlook.

Much of this ‘intelligent data’ can be found when a company’s comprehensive and granular Management Accounts are extracted from their accounting platform and made available for lenders digitally and in real time.

Choosing the right technology

Our intelligent accounting integrations provide clarity and efficiency to what can be a painful and expensive process.

They take management account data direct from the SMB’s accounting package and make it fit for purpose for lenders, and in particular, credit risk functions.

Live access to SMB financial statements from Validis ensures quicker decisioning for new applicants (saving up to 90%) as we structure their records in an easy-to-consume way and surface them within the software the lending team already use.

We make monthly, quarterly and annual reviews seamless as the SMB financial data arrives in minutes with all key financial ratios auto calculated ready for analysis and discussion.

We take the pain out of portfolio risk analysis, helping to understand the risk outlook, and required capital allocation limits and collections strategies for your borrower base.

And we do all this while providing a seamless, digital journey for your borrowers and new applicants.

Click here for more information on how Validis is helping lending credit risk teams.

Joel Curry

Joel Curry

Joel has more than 15 years of experience of software sales and business turnarounds in both the US and UK markets where he spent the majority of his time driving high growth business sales for Experian.

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