COVID-19 has put many SMEs under existential threat. In reaction to the current climate, some lenders have seen 2000% rise in SME loan applications. SMEs need to access loans quickly and easily. Can traditional lenders’ cumbersome loan processes keep up with the demanding times? Or will SMEs look elsewhere?

Most smaller business owners don’t know how to take out a loan. Of the UK’s 5.4 million SMEs, the vast majority have never borrowed money through a bank. When business owners are asked to present 12-month cash flow forecasts, profit and loss statements, and balance sheets, the loan process can grind to a halt. SMEs often rely on face-to-face meetings with a loan manager to understand the process. 

But banks are struggling to find the resources to maintain the balance between making credit accessible to SMEs while protecting themselves from risk. 

As productivity hits record lows and buffer capital dries up, many smaller business owners are now concerned that financial assistance won’t arrive until it’s already too late.

Digital transformation’s role in SME financial stability

This month, McKinsey released a report that linked digitisation to higher productivity and economic potential. In 2018, MGI estimated that digitisation could add USD $13 trillion to the global economy by 2030.

But right now, businesses are at record low productivity. For the economy to recover, businesses need to be more productive so they have more money to spend. By investing in digital transformation, SMEs could kickstart themselves back into productivity.

Financial digital transformation could be a good place for SMEs to go next. Many of the key players in finance are digital transformation pioneers so they are well-versed in making the transition to digital simple for SMEs. 

“Our new research is clear that incumbent companies that use third-party industry platforms at the same time as cooperating with global, more horizontal ones achieve the highest boost to profit growth,” McKinseys wrote in a briefing note. 

Digital lending platforms speed up and simplify the loan process for SMEs 

Digital lending is one of these solutions that’s gaining traction in the business loan world. Between 2019 to 2025, the digital lending market is forecast to grow with a 20.3% CAGR.

Digital lending platforms offer quick and flexible loans without the need for paperwork. Businesses can apply for loans in minutes and receive funds in as little as 24 hours. The loans are easy to understand and can be managed entirely online.

Unlike traditional lenders that require business owners to submit stacks of paperwork, digital lending platforms can access financial data automatically. They are also able to instantly assess credit risk with AI and real-time analytics.

Banjo: An Australian digital lending platform 

Banjo provides secured and unsecured business loans to SMEs. With minimal exposure to high risk sectors like hospitality and retail, Banjo lends to strong businesses that have been operating for 2+ years and have a good track record. 

When the economy bounces back, Banjo’s support of strong smaller businesses will mean it will be well-placed to become a market leader due to the lending stress of its competitors.