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The lending industry has been witnessing constant developments with technology enabling finance providers to tap into emerging markets, customer data, and lower-cost lending channels. With data analytics and technology-driven approaches, digital lending is offering better products in a faster, more cost-efficient, and engaging way.

According to an ABA survey report, “Digital lending could reach 10% of all individuals and businesses by 2020.” The numbers are likely to be much higher for small and medium enterprises (SMEs) globally.

However, this was not the case with SMEs before. In the past, financial institutions like banks, credit unions, and cooperatives haven’t been able to fund SMEs sufficiently, which consequently confined their growth. A few main challenges were the lack of ease in transactions, high-interest rates, and tedious processes.

That said, SMEs act as a growth engine of economy for developing and developed countries. But, the aforementioned financial challenges have always impacted the SMEs growth, profitability, and financial innovation overall.

How digital lending boosts SMEs growth?

SME loans are now leaning heavily towards digital lending channels. The advent of technology has brought in great scope for easy and convenient loans for underserved part of the market. Here are some ways digital lending is boosting SMEs growth and changing the landscape.

  • With the advent of digitalization, the online channels now offer SMEs with a faster loan application process, automated evaluation, and approval.
  • Digital lending has made lending processes quick and easy for SMEs significantly cutting down on costs from credit underwriting to operations.
  • Digital lending has established unconventional approaches to assess small and medium enterprises by using credit scorecards comprising a host of data from a multitude of sources. It helps to evaluate the creditworthiness of applicants and quickly ensuring risk-free loans.
  • With digital lending, risk-profiling can be done quicker and better with the use of both structured and unstructured data.
  • Credit decision making has always been slow in case of SMEs; however, with digital lending, applicants now experience seamless decision-making process and faster turnaround time.
  • With digital lending, application assessments are quick, accurate, and less expensive. It allows lenders to offer loans at lower interest rates without any guarantor or collateral.
  • Digital lending allows SMEs to spend more time in drumming up new opportunities while cutting the overhead cost of generating funds by 30-50%.

Conclusion

Digital lending has significantly closed the gap between lenders and borrowers providing SMEs access to quick and more organized funds. They are now offered with more customized financial and lending solutions to cater to the various needs. The whole market is waking up to marketplace lending (popularly peer to peer lending and crowdfunding) eliminating the need for intermediaries.

Further, digitalization has also allowed banks to leverage technology and automated solutions to gain a competitive edge and speed up the overall lending process. Consequently, enhancing the scope for SMEs for revenue increase and optimization of payments.