Richard Kerton, CEO and Co-Founder, Esme Loans

SME Focus

According to 2018 statistics from the Federation of Small Businesses (FSB), the total number of people employed in SMEs was 16.3 million, amounting to 60 per cent of all private sector employment in the UK. The combined annual turnover of SMEs was £2.0 trillion, representing a staggering 52 per cent of all private sector turnover.

Yet, despite their enormously important contribution to the UK economy, some of these businesses are struggling to get the kind of capital they need to grow and scale their businesses. Many are put off by the slow processes associated with applying for loans from larger banks.

The main reason for this is that the lending processes at larger banks tends to be heavily filtered – a business seeking quick funding will have to go through multiple layers or approvals before a decision is made.

This multi-layered process is time-consuming. SMEs and scale up businesses want convenience, fast response times, and more competitive and flexible loans.

Going digital 

Enter alternative lenders.

They have been able to effectively harness the digital revolution, utilising algorithms and access to data to cut the loan approval processes from months or weeks to minutes.

As they are entirely digital operations with none of the costs associated with physical branches, alternative lenders are well placed to deliver these seamless services, as well as offering very competitive terms in the market.

The advent of Open Banking marks the beginning of this overall journey into an exciting digital future, which will transform the SME lending space.

It essentially allows lenders to access key information, in this case bank statements, straight from the source. Providing paperwork in an application has long been one of the biggest pain points for SMEs. Compounding the problem are the varying requirements of each lender – one may ask for three months of bank statements, the next will ask for financial accounts and cash flow forecasts

Ultimately, Open Banking coupled with AI tools will help make access to existing products, such as credit, debt advice or financial advice, far easier. This is a real enabler for customers and businesses looking to scale up as it means a move away from laborious, time-consuming, manual, paper-based processes.

Open Banking will make finance more convenient, more tailored and much smarter. SMEs will be able to shop around for better products and be more demanding of the services offered. This will free up much-needed time to focus on growing and scaling their operations.

Open = personal

It is clear that both Open Banking and digitisation are changing the way banks operate and provide services for their clients. Digitalised capabilities are turning the customer journey into a highly-personalised one. By utilising their greater access to data in an open model, banks and alternative lenders will develop a fuller understanding of what the customer or SME is trying to achieve, providing the right financial services at the right time in their journey.

Alternative lenders understand SMEs’ desire for seamless experiences, and their data insights mean they are able to build better journeys and customer experiences, instantly linking their marketplace or cloud-based accounting provider at the touch of a button. This eliminates the need for lengthy paperwork.

As alternative lenders leverage more insights from customer data, they become more effective with their marketing to SMEs, and are able to respond to enquiries in an agile way.

A golden era for SME lending

SMEs today are increasingly digitally literate, utilising digital platforms for their businesses. Financial players should reflect this fact. A fully digital end-to-end service, powered by automated data collection, represents an important part of the future of small business banking. This kind of offering is at the centre of the next wave of SME banking services.

Data transparency, speed, ease of use and personalisation mean the future is exciting for SMEs and this will lead to a golden era of SME lending. If financial services can adopt and roll out the necessary technologies, the UK economy will reap the rewards.