Small and medium-sized enterprises (SMEs) are undoubtedly part of the forces driving global economic growth and innovation. In the US, the commercial loan market was estimated at $2.77 trillion in 2023. Furthermore, the UK currently witnesses a turnover of £2.4 trillion per year from small and micro businesses, which shows that SMEs are a growing and lucrative market. Despite the numbers and the promises, SMEs face financial challenges.
Credit unions, online lenders, and banks typically offer flexible financing to SMEs. The financing has varying interest rates, repayment terms, and eligibility requirements. However, many small and medium-sized enterprises use the loans for inventory, expansion, equipment financing, debt consolidation, and more.
The 2023 Fintech Global Report states that 4 out of 10 small and medium businesses could only scale due to the financial support available to them in the form of loans. 70% of them stated that they found the alternative financial solution offered by Fintech or digital lenders more accessible and straightforward than that of traditional banks
What does this mean for you as a digital lender? The Federal Reserve Banks Small Business Credit survey reports that 59% of small businesses have a fair or poor financial position even though 99.9% of SMEs comprise the US market. This only indicates that SMEs will be massively considering business loans. To better position yourself in the SME lending industry as a viable support in 2024, there are five trends you need to look out for. Whether you’re a lender, credit provider, or policymaker, you must stay abreast of these latest trends to make informed decisions and support the success of these businesses.
3 SME Lending Trends in 2024
Growth of Alternative Lending Platforms:
There’s a rising trend in using non-traditional lending platforms that offer quicker and more flexible financing options than traditional banks. Another pointer to the fact that succeeding as a digital lender in 2024 requires backing yourself up with a fierce loan management platform that heavily supports unparalleled customer experience and satisfaction. These platforms, such as Configure, often utilize digital-first approaches. This reduces the need for physical documentation and speeds up the approval processes.
Timely Insight:
SME liquidation is increasing, and economic uncertainty will likely continue throughout 2024, making managing credit risk more complex and important. Loan defaults are on the rise. To address these challenges, you must leverage comprehensive, timely data backed by intelligent decision-making tools to have a competitive edge. Real-time information on creditworthiness, industry trends, and market conditions will be the differentiator in how you scale your portfolio during this time.
Rise of Personalized Lending Experiences:
Small and medium-sized enterprises are not left out in demand for personalized services. SMEs have diverse needs that require more than a one-size-fits-all approach. They want varying loan amounts that are precisely matched to the scale of the project or business need rather than offering a limited range of loan sizes that may not fit all circumstances. SMEs have variable income streams depending on the season, project cycle, or market conditions, so they want flexible repayment plans. Also, incorporating specialized services that align with specific industry requirements or business models can set you apart. For example, an SME in the manufacturing sector might benefit from linked equipment financing options and a repayment schedule that aligns with the expected life cycle of the equipment. Similarly, businesses in the agricultural sector might want access to loans with terms that consider the seasonal nature of farming.
Opportunities for Lenders
Federal Reserve reported that in 2021, 23% of all small business loan applicants chose an online lender, and the trajectory has remained upward even in 2024. Historically, making informed credit decisions for small businesses can be challenging. SME owners often operate from personal bank accounts, making it harder for you to assess risk. However, integrating commercial and consumer data can give you a holistic view of an SME’s financial health. This approach enables better risk assessment, reduces credit losses, and instills confidence in how you grow SME portfolios.
You can and should use AI and Automation to your advantage. In 2024, artificial intelligence (AI) and machine learning are reshaping lending processes with predictive analytics, automated underwriting, and personalized loan offers. Use these tools to tailor your solutions to individual SMEs to improve their access to credit while managing risk.
Net Zero and environmental, social, and governance (ESG) factors influence lending. SMEs increasingly seek financing aligned with sustainability goals. You can incorporate ESG criteria into your credit assessments. As investors and consumers prioritize sustainability, SMEs that embrace responsible practices will have a competitive advantage. You should keenly look at businesses committed to net-zero emissions or social impact initiatives.
Conclusion
In 2024, SME lending is at a crossroads. With the dramatic change in the SME payments ecosystem, the financial industry must take decisive steps to bridge the lending gap.
Lenders that embrace data-driven insights, leverage AI, prioritize sustainability, and foster collaboration will thrive. This means supporting SMEs becomes not only a business imperative but also a catalyst for economic resilience and growth. Explore how Configure, powered by Evolve Credit, can help you automate your lending processes and grow your portfolio.
