Unlocking SMB Growth Through Automation and Embedded Lending Solutions
Successfully launching a small business (SMB) is no
minor feat, as nearly 50% of small businesses fail
within the first five years. At any given time, nearly 33% of business owners experience
challenges accessing the necessary capital that they need to grow. Quick,
reliable access to working capital is critical for small business owners and
often means the difference between maintaining their operations or shutting
their doors.
Recent tariffs, supply chain disruptions and
macroeconomic fluctuations are currently impacting SMBs by narrowing their
already-tight cash flow and to counter this, many business owners are looking
to their local community financial institutions (FI) for assistance.
The problem for business owners is that too often,
small business lending is a slow, complex process with cumbersome manual review
workflows and rigid documentation requirements. Additionally, outdated legacy
systems and siloed customer data hinder community FIs’ ability to scale their
SMB lending programs to meet demand because these obstacles slow down the loan
approval process and prevent institutions from effectively assessing borrower
risk.
Addressing these issues depends on an institution’s
selection of technology. With so many third-party vendors on the market, it can
be overwhelming for FIs to choose the one that best serves their SMB financing
needs. FIs should prioritize technology that enables smart, secure lending
decisions such as AI-powered credit
models or automated KYC and KYB checks.
AI-powered
solutions can extract and classify this data in seconds and significantly
reduce document review time. Some automation even uses machine learning to
identify and extract relevant information from unstructured sources and enables
lenders to scale their operations without increasing their staff or overhead.
Embedded capabilities make SMB
financing accessible
Much like consumers, SMBs expect frictionless
experiences akin to other fintech or consumer-facing platforms. Embedded
finance addresses this need and provides a
better way for community FIs to serve SMB borrowers without the typical risks.
Instead of managing all aspects of the SMB lending
process (i.e., underwriting, risk
assessment and loan servicing internally) financial institutions can partner
with third-party providers specializing in purpose-built platforms for these
areas. Taking this approach allows institutions to quickly respond to market
demand for SMB financing while placing the burden of risk management and
operational responsibility on trusted partners.
Embedded
finance enables financial institutions to more effectively scale their
infrastructure without investment; add fully formed SMB lending programs to
their portfolios without developing new systems, hiring lending teams or taking
on additional compliance burden; and gain a competitive edge in a rapidly
evolving market, where speed is a necessity.
Applicants
can directly apply for loans within existing digital banking platforms,
creating a faster, more convenient way for businesses to access the capital
they need. Ultimately, embedded finance helps simplify the borrowing process,
offering institutions with an unobstructed point of entry into the market.
Opening
doors to financing opportunities
Frequently,
loan applications fail to meet a bank or credit union’s internal lending
criteria and prevent FIs from providing financing to some SMB owners. This
often results in missed opportunities to generate non-interest income and
weakens relationships with SMB borrowers.
Partnering
with an established “funding network” of trusted lenders allows FIs to refer
applicants to alternative financing options if they fall outside of traditional
credit requirements. Taking this approach gives SMBs access to the capital they
need while FIs earn referral income and maintain valuable customer or member
ties.
For
instance, banks with $1–$5 billion in assets can deliver an additional 8%–20% in annual
non-interest revenue. Integrating with embedded finance technology providers that
double as funding partners not only expands SMB lending options but also
prevents borrowers from seeking alternatives with competitors.
The
bottom line
SMBs are an economic lifeblood for local
communities -- accounting for 44% of the U.S. GDP and employing
almost 50% of private sector employees working on Main Street – and community
financial institutions are in a unique position to best support them.
Economic disruptions and uncertainty will continue
to impact businesses across multiple industries, and those business owners will
ideally turn to their local community banks and credit unions for quick and
reliable financing options to either maintain or expand their operations.
Financial institutions that have the right technology and tools in place to meet this demand within the communities they
serve will be best positioned to capitalize on this market opportunity in their
own backyard.
Will Tumulty is CEO of Rapid Finance, a leading provider of small business financing and enterprise lending
solutions.