“Banks just aren’t set up to understand small businesses”

From Maija Palmer at Financial Times:

“There is an estimated $2tn gap between SME funding needs and what banks will provide. If there were one overriding theme to pick out in the applications for this year’s Future of Fintech Awards, it was a focus on small business customers. The words “small businesses are poorly served by banks” kept cropping up on submissions. Fintech companies, it would seem, are lining up to fill this gap in the market by providing small companies with everything from lending, foreign exchange to advice. For many founders the idea for their start-up had come from a bad personal experience with small business banking…SMEs are a potential enormous market. Small companies account for 90 per cent of the world’s businesses, according to the SME Finance Forum, a global small business association. They are, indeed, poorly served by banks, says Matt Gamser, head of the forum. Banks tend to provide personalised services for a few high-value customers, or automate services for a mass consumer market.”

In Singapore, research from SPRING Singapore showed that 180,000 small and medium enterprises (SMEs) consists of nearly 99% of the all businesses. In addition to that, they contribute to about half of Singapore’s GDP and employ approximately 70% of the labour force locally. These statistics show that SMEs play a significant role in the development of Singapore’s future and the creation of job opportunities. While they account for a large percentage of the economic market, a gap still lies between small businesses demand for funding and what banks are willing to provide. Banks are more willing to provide personalised services for high net worth clients or automate services for large consumer markets.

Problems that local SMEs face include slow payments, rising costs, currency fluctuations and lack of skilled staff. Having sufficient cash flow as well as the timing of these cash flows are necessary to aid in their concerns. With limited opportunities for bank financing, SMEs are starting to turn towards alternative financing options which includes crowdfunding, peer to peer financing, ICOs and invoice financing. Through these options, SMEs are able to obtain loans much faster, with less paperwork involved. Invoice financing platforms conduct stringent background checks on each invoice and they are graded based on their creditworthiness. Therefore, the speed at which applications are checked are much faster with greater efficiency and customer satisfaction. Continue reading

4 in 5 SMEs fail in financing assessments

From Singapore Business Review:

“Amongst small to medium enterprises (SMEs) in Singapore, 81% are not fit for business financing, consultancy firm Linkflow Capital revealed. According to the data from the firm, 863 of the 1065 users in its loan assessment platform are not eligible for financing. The most common reason for potential rejection of loan applications is SMEs’ reports of financial losses. Linkflow Capital said that 55% of recorded SMEs registered losses in their financials. Another reason is the age of the company. Around 21% of startups are incorporated in less than a year. Amongst small to medium enterprises (SMEs) in Singapore, 81% are not fit for business financing, consultancy firm Linkflow Capital revealed.”

The study done by Business Management Consultancy firm Linkflow Capital, showed that many SMEs’ current financial conditions fail to meet mainstream banks and financial institutions standards, in order to be eligible for financing. In addition, the bureaucratic and stringent nature of traditional banks makes it a long and tedious process in obtaining funding. SME schemes that the Singapore government provides often have strings attached, whereby some grants are specifically for research and development, while others are for hiring new employees.

Peer to peer loan applications and processing takes up a relatively shorter amount of time, smaller businesses also benefit as funding is easily obtainable compared to mainstream banks. The minimal paperwork and utilisation of online technology means that applications are reviewed much faster. The advent of P2P lending platforms and the benefits that they bring makes it a viable alternative that SMEs can look to for funding.

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