Insight: Transforming access to SME finance

Chirag Shah,
15 Jun 2021

The use of technology is by no means a new concept, but the pace at which it is transforming our everyday lives is accelerating.

This is no different when it comes to the financial world. Open Banking and AI are revolutionising the way that people interact with their finances, and this is particularly the case for SME finance, where we envisage one-click lending soon becoming a reality.

During the pandemic

While Nucleus, like many other lenders, has been investing in technology and streamlining solutions over the past few years, little did we know just how important it would be throughout the pandemic. During the last year, access to fast and flexible finance for SMEs has been crucial, as many businesses have needed instant access to simply survive.

While the government’s Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS), were developed in response to the pandemic to support SMEs, they brought both opportunities and challenges to the alternative finance sector.

During the early months of the scheme, mainstream banks administering CBILS were unable to process applications quickly enough to meet the needs of businesses.

But, when fintech lenders were finally accredited, this changed. After becoming an accredited CBILS lender, we were able to process over 12,000 applications, providing decisions and funding within hours thanks to AI and automated underwriting.

This is something high-street banks and many alternative lenders simply cannot do due to falling behind where tech is concerned.

Better outcomes for all

AI and Open Banking allow all parties involved in the marketplace to get a better understanding of short-term business performance.

For lenders it means being able to offer faster, more accurate and better informed decisions. While for brokers, it enables them to put together stronger loan applications with higher approval rates. And, for customers, it results in faster access to funding via a simplified journey.

Thanks to Open Banking, customers no longer need to fill out piles of paperwork, as the technology behind it accesses various data points, removing the need to rekey data.

Additionally, third parties who are granted access will get a comprehensive overview of a customer’s financial history.

Ultimately, this leads to a better risk profile, enabling the right lending decisions to be made and resulting in better outcomes for everyone involved.

Finally, eKYC and digital AML add an extra layer of protection for customers. However, when errors are made inputting information during the application process, delays and frustration for all parties involved become likely.

To overcome this hurdle, lenders and brokers must work together to ensure accurate information is provided during the application process. Taking the time to get this right will help highlight the benefits of technology in the lending process and enable quicker and more consistent decisions for UK SMEs.

The future

Without a doubt, Covid-19 has increased the pace of digitisation within the industry. Not only are customers starting to embrace Open Banking, but lenders are increasingly investing in new technologies.

It is these technologies that will deliver the kind of outcomes that SMEs are looking for, which are speed, flexibility and a seamless customer experience.

Another result of the pandemic has been increased pressures on the lending market. Once the pandemic ends, it’s likely that the number of players in the market will reduce significantly, given that many have already struggled to compete.

However, those who make it out of the woods will be more refined, have better access to capital, and will be able to support businesses much better.

Underpinning their success will be the use of technology. We are likely to see permanent changes when it comes to the use of technology and customers’ acceptance of it, both in terms of speed and quality of decision-making.

It will be these lenders who can deliver on these points, that will flourish in the years to come.

Written by Chirag Shah, CEO of Nucleus Commercial Finance