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Small and medium-sized enterprises (SMEs) face significant challenges, including continuous changes and turbulent economics. To survive and thrive, SMEs require access to flexible financial support.

However, legacy lenders are failing to meet demand, with the World Bank estimating that MSMEs have an unmet financing need of $5.2 trillion annually, equivalent to 1.4 times the current level of global MSME lending. This is a significant funding gap and a massive opportunity for growth-seeking financial institutions.

Undoubtedly, the pandemic impacted SME financing. UK Finance's recent Business Finance Review reveals that SME lending declined in the first quarter of 2023 to a post-pandemic low of £3.7bn. Nonetheless, the study highlights a resurgence in loan and overdraft applications, suggesting that SME demand for finance is showing signs of improvement.

SMEs are agile, innovative, and key agents of employment and growth, and giving them access to the capital they need has a huge positive impact on the rest of the economy.

Still, one in four SMEs regularly face barriers to funding, and businesses require additional financing and capital to rebuild after the COVID pandemic, streamline operations, and establish more sustainable supply chains in the wake of rising inflation and energy prices. Entrepreneurs and start-up SMEs must also be given the resources and cash flow support they need to prosper, with greater access to funds providing them with a lifeline for long-term success.

The lending crunch

Europe has about 25 million SMEs who account for 99% of all EU businesses, half of its GDP, and two jobs out of three. According to the European Central Bank’s Survey on the Access to Finance of Enterprises (SAFE) in the euro area, conducted between 6 March and 14 April 2023, the financing gap across all financial instruments (bank loans, credit lines, trade credit, and equity and debt securities issuance) increased slightly across firms.

Over the last five years, almost six in 10 (58%) UK SMEs have been unable to secure any or sufficient funding to cover the needs of their business, on at least one occasion, according to a Mambu report on SME funding. And the vast majority (93%) would consider switching lenders if a competitor offered a better or improved service.

Legacy providers are failing to deliver as they lack the agility and flexibility to offer SME-centric lending options, often shoehorning SMEs between retail and corporate products, which fail to provide the right levels of service, payment terms, and funding options. This oversight has left a significant hole in current lending provision, and forward-thinking lenders are presented with a major opportunity.

Untapped lending opportunities

For business lenders seeking expansion, the SME lending gap represents a massive, underserved potential customer base. To capitalise on this, they must deliver highly competitive SME-centric portfolios that match market needs as they evolve, reduce time to market, and accelerate time to revenue on SME loan offerings, and leverage APIs to tailor loan products in minutes, not months, using a cloud-native composable platform.

Our customer Allica Bank has been built especially to serve established SMEs. Despite representing 30% of the UK’s GDP, the sector has been left behind by traditional banks and overlooked by newer monoline fintechs. Allica Bank combines modern tools and cloud technology with having feet on the ground in local communities and is well-positioned to build and deliver products and services to its customers. Another lender, Ashman, serves SMs in the commercial real estate sector. Ashman leverages Mambu to manage its loan offering to build speedy, personalised service for property businesses and entrepreneurs in the UK. It aims to support SME borrowers with access to the right lending and know-how to create sustainable properties and practices in a simple, transparent way.

Benchmarking Mambu’s customer performance data against industry peers has shown that Mambu has lower resource needs and achieves faster time to revenue, enabling leaner and more efficient operations with better cost control and higher ROI, and ensuring more profitable and viable SME lending products. However, Mambu doesn't do this in isolation; it collaborates with a network of partners to enhance its offerings.

One such partner is nCino, who simplifies SME lending by streamlining loan origination, enhancing credit scoring accuracy, optimising collections management, and improving operational efficiency for financial institutions. Veripark, another Mambu partner, excels in enhancing customer engagement through digital transformation for FIs. Its CRM solutions and analytics tools create seamless personalised experiences across channels, bolstering efficiency and meeting digital-era customer demands. In the realm of regulatory compliance and risk management, ComplyAdvantage specialises in AML compliance, offering real-time risk assessment, enhanced due diligence, and sanctions screening. This seamless integration streamlines AML processes, enhancing efficiency for financial institutions and ensuring regulatory compliance.

To deliver tailored products that reflect the needs of SMEs, operations and systems must support the diversity and scope required, delivering commercially viable SME financing solutions. As SME attitudes and needs change, lenders must keep up.

Lenders with wider offerings and finance instruments can reduce SMEs’ dependence on debt and provide them with greater flexibility and resilience in these volatile economic times. SME lending is an important growth opportunity, and neglecting SMEs can lock you out of future lucrative commercial business.

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