Building the future on lessons of the past

In this article, Dave Lewis, CEO, and founder of Ranqx, examines current concerns affecting SMB owners, as well as the broader economy. As Dave explains, these issues are being compounded by the ongoing inefficacy of small business lending, which has been a problem ever since the financial crisis of 2008.

Broadly speaking, economic downturns aren’t good for anybody. Crises of this nature hurt everyday people, affect big businesses, and unsettle investors. However, it’s often small-to-medium sized businesses (SMBs) who find themselves hardest hit. Take for example the 2008 financial crisis, which disproportionately affected SMBs [1]. Worst still, this crisis greatly diminished the appetite of banks and credit unions to lend to SMBs, a problem that persists to this day, almost 15 years on.

Right now, we find ourselves back in a moment of growing economic concern. There are few places in the world not experiencing some level of discomfort inflicted by a combination of rising fuel costs, continued supply chain disruption and the lasting effects of Covid-19. If that isn’t scary enough, there’s also the spectre of international conflict lingering (rather loudly) in the background. Sadly, this assortment of issues has the potential to adversely affect SMBs in the short-to-medium future.

PROTECTING THE LIFEBLOOD

Of course, with so much going on, this point can sometimes get lost in the crowd. However, it really shouldn’t. It’s no exaggeration to call SMBs the lifeblood of Western economies. Almost 50% of the world’s population currently works for an SMB [2]. Therefore, there’s a huge global incentive to ensure that these businesses can navigate increasingly choppy economic waters. I believe there are very few people who would disagree with that statement, but there remains some confusion about how the task itself should be approached.

In order to understand how we can better support SMBs through this period, we need to first appreciate the particular challenges and stresses they face. As mentioned, following the 2008 financial crisis there was a drastic decrease in lending to SMBs. In fact, loans by large banks to small businesses from 2008 to 2011 were practically non-existent, while loans by small banks were down dramatically. As the economy began to recover, levels of loans did rise, but it’s still a huge problem in 2022 [3].

THE PROBLEM PERSISTS

To this end, the World Bank has previously estimated the unmet financing need of SMEs in developing countries to be $5.2 trillion annually, approximately 1.5 times bigger than the current lending market [4]. Equally concerning is research that indicates a sizable racial differential in the field of small business lending itself. Whichever way you come at it; SMB lending is an area of modern business in need of significant improvement. Simply put, we can’t afford to continue with a ‘business as usual’ mindset.

Thankfully, the market is beginning to realise the potential benefit from modern solutions, which can leverage alternative data sources when making lending decisions. By incorporating a degree of science within the process, these systems are helping to make SMB lending more frictionless, and perhaps most importantly, dramatically shortening the time frames on expected decisions. That’s probably why consultancy leader, Deloitte, has highlighted them as being “key solutions to current lending gaps” [6].

A NEW, DIGITAL DAWN

What’s more, such solutions can enable banks and credit unions to adopt more digital first approaches to their interactions with SMBs. This is important, especially in the wake of the pandemic, which has influenced more people to use digital banking solutions [7]. It would seem this trend is also occurring among SMBs, in fact, Mambu research has found that 92% of SMBs are open to changing to lenders for different or simpler digital support [8]. As such, there’s clear evidence to suggest data-driven lending systems are the future of SMB credit lending.

That’s what we’re delighted to offer at Ranqx. Our platform delivers digital loan origination, auto-decisioning, and monitoring, thus enabling us to fix the world’s broken SMB credit lending systems, protecting smaller businesses in the process. By providing access to real-time, orchestrated SMB loan origination, data points, and automated decisioning, we can help SMBs gain access to a more practical digital application process, and equally, can help lenders to make more accurate lending decisions with dramatic efficiency gains.

In doing so, we’re able to provide a true ‘win-win’ solution that benefits both sides of this ongoing, protracted issue. Ultimately, the introduction of our technology to markets across the world, beginning in the United States could not be timelier. Considering the concerns referenced before, the time to support SMBs is now, especially with many of them still battling a nasty Covid-19 hangover. Thankfully, I do believe that data-led technologies can offer a path to safety, but we as an ecosystem must start collectively walking it imminently.

SOURCES:

1. https://www.investopedia.com/small-business/10-years-after-financial-crisis-impact-small-business/
2. https://www.worldbank.org/en/topic/smefinance
3. https://www.investopedia.com/small-business/10-years-after-financial-crisis-impact-small-business/
4. https://www.worldbank.org/en/topic/smefinance
5. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3821442
6. https://www2.deloitte.com/content/dam/Deloitte/xe/Documents/strategy/me_bridging-the-sme-finance-gap-in-the-gcc.pdf
7. https://www.prnewswire.com/nl/persberichten/pandemic-makes-75-of-consumers-more-likely-to-use-digital-banking-in-the-future-820838108.html
8. https://cdn.sanity.io/files/0k2k2bbv/redesign_21/354200f5a5f15b1b7830a43985ff0919120c9e1d.pdf