Small businesses in the U.S. continue face challenges ranging from recessionary concerns, to rising inflation, labor shortages, and ongoing supply-chain issues, among others. The net effect is a current SMB closure rate of nearly 38% nationally and while some of this is attributable to factors such as lack of market demand for businesses’ products and services, in many cases, a lack of access to capital is pushing many SMBs to close their doors. This complex business environment is underscoring the importance of SMB lenders’ ability to provide their customers with access to capital quickly, seamlessly and in away that is risk-responsible for the institution.
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Lending-as-a-Service and How it is Impacting SMB Lending
There is an increasing trend of financial institutions leveraging innovative fintechs to provide modern Lending-as-a-Service (LaaS) capabilities to streamline the provision of capital to SMBs within their communities. Leveraging traditional and alternative data sources while relying on automation, these FIs are gaining a more comprehensive view of an SMB’s true creditworthiness. With automated checks and decision models, lenders can accelerate the origination and decisioning process to help qualified small business owners receive funds faster.
Too often, however, financial institutions tend to think of LaaS and SMB lending only in terms of loan origination. The real value – particularly in an economic environment like we see today – is in the ability to leverage these platforms to help FIs continue to serve small business customers throughout the life of the loan — and beyond.
In a perfect world, small businesses would maintain a constant pattern of payments, but in the real world, several factors can disrupt this, requiring lenders to take a more proactive role in the collections and recovery process.
Today, LaaS systems can actively monitor business cash flow patterns to alert financial institutions of any relevant changes. Tools like automated cash flow analysis, debt-to-income (DTI) ratio monitoring, continuous aggregation of transaction monitoring as well as AP/ AR monitoring are helping FIs address potential issues proactively before they become more serious problems.
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Regardless of economic conditions, all loan portfolios have some that inevitably fall into default status. When this happens, modern LaaS applications help support the collections department and position them to engage with borrowers to help resolve issues and mitigate negative effects for the small business as well as the institution.
AI powered platforms are able to look for patterns of changes in business profiles, ownership or when new debt is incurred. Additionally, AI-powered LaaS systems can enable FIs to identify business owners who open new businesses. With these types of true end-to-end data driven LaaS platforms Financial Institutions can get a much greater visibility into the true health of their portfolio.
As the SMB lending marketplace continues to evolve, financial institutions and fintechs will establish even more partner relationships that benefit both parties and the business banking customers that they serve. By expanding beyond application and origination and leveraging modern technology to support the life of the loan and the SMB relationship over time, financial institutions can realize greater returns on their small business lending initiatives.
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