Article
Bridging the SME Lending Gap: How Aggregators and Technology Empower Small Businesses
July 20, 2023
Introduction:
Small and Medium-sized Enterprises (SMEs) are the backbone of the global economy, driving innovation and creating job opportunities. However, one of the significant challenges facing SMEs is obtaining timely and accessible funding to manage their cash flow effectively. In this article, we will explore the hurdles faced by small business owners in accessing business funds and how aggregators can play a pivotal role in unlocking new business potential through SME lending.
Challenges in SME Lending:
Lack of Collateral: According to a recent survey by the World Bank, nearly 50% of SMEs in developing countries cite the lack of collateral as a major obstacle to accessing loans from traditional lenders. Many small business owners lack the assets needed to provide security, leading to limited access to credit.
Lengthy Application Process: A study by the Small Business Administration (SBA) revealed that SMEs spend an average of 26 hours searching for loans and completing loan applications. The lengthy and complex application process of traditional financial institutions can be time-consuming for SMEs.
Credit History Constraints: According to the Federal Reserve’s 2021 Small Business Credit Survey, 54% of SMEs reported that their credit history was a significant factor affecting their ability to obtain financing. SMEs with limited credit histories or a less-than-perfect credit score face difficulties obtaining loans.
High Interest Rates: The same Federal Reserve survey found that 74% of SMEs that applied for financing from online lenders were offered interest rates higher than 20%. Even if SMEs manage to secure loans, they often encounter high interest rates, which can burden their cash flow and profitability.
Addressing the Credit Gap in SME Lending:
As of FY 2022, the MSME industry offered employment to more than 111 million people, with 33 million MSMEs located in rural areas and 31 million in urban areas. The sector currently contributes 29% to the country’s GDP, a figure expected to reach 50% by 2025. Despite its substantial contributions, the MSME sector faces an astounding credit gap of $530 billion.
The existing credit gap has left a significant portion of SMEs without access to the funds they need to thrive. As of now, only 14% of SMEs have access to credit, while 47% of the debt demand remains unaddressed. This indicates a clear need for innovative solutions that can bridge the credit gap and empower more SMEs to access the financing they require for growth and expansion.
The Role of Aggregators in Empowering SMEs:
Aggregators, with their unique business models, have the potential to address the challenges faced by SMEs in accessing credit. By acting as intermediaries, these platforms connect SMEs with a diverse network of lenders, investors, and financial institutions. As a result, SMEs gain access to expanded financing options, tailored loan offers, and a more streamlined application process.
By leveraging data analytics, aggregators can better understand SMEs’ needs and preferences, offering targeted financial solutions. Additionally, by partnering with lenders and financial institutions, aggregators create a collaborative ecosystem that benefits both borrowers and lenders.
Closing the Credit Gap:
Aggregators play a crucial role in narrowing the credit gap in the SME sector. Through their efficient and technology-driven approach, aggregators increase the efficiency of the lending process, reducing the time gap between loan application and approval. This is especially beneficial for SMEs with urgent cash flow needs.
Moreover, aggregators provide valuable educational resources to SMEs, helping them understand the benefits of accessing credit through these platforms. By creating awareness and building trust, aggregators empower SMEs to explore financing options they may have otherwise overlooked.
To address the challenge of SME lending and narrow the credit gap, a compelling solution has emerged in the market—a platform that acts as a facilitator and intermediary between lenders, aggregators, and SMEs, offering multiple access points for all three parties. Maadhyam, powered by Biz2X, adopts an API-based model, uniting all stakeholders under a unified umbrella to bridge the lending gap effectively. By leveraging cutting-edge technology and seamless integration, Maadhyam fosters collaboration and empowers SMEs with greater access to financing, catalysing their growth and success in the market.
Maadhyam streamlines the lending process, providing valuable insights to banks for informed decision-making and risk assessment. This allows banks to expand their lending capacities and reach more deserving SMEs. Aggregators, too, benefit from Maadhyam’s robust framework, efficiently connecting SMEs with suitable lenders and opening avenues of credit. In essence, Maadhyam revolutionizes the lending landscape, empowering SMEs to access the financing they need to grow and prosper.
Conclusion:
The challenges faced by SMEs in obtaining business funds are undeniable, but aggregators offer a transformative solution to bridge the credit gap. With their streamlined approach, diverse financing options, and targeted financial solutions, aggregators empower SMEs to access the funding they need to thrive.
As the symbiotic relationship between aggregators and SMEs continues to grow, the future of SME lending looks promising, creating a win-win scenario for all stakeholders involved. By embracing innovative lending models, SMEs can unlock their true potential, driving economic growth, and contributing to the prosperity of nations.