How FinTechs are Bridging SMEs Financing Gap

Access to credit has always been a challenge for SMEs in India. Disruptions to enterprises triggered by COVID-19 and the tightening of liquidity made purchase financing and credit problems even more critical. However, FinTechs are bridging SMEs financial gaps and are changing the way SMEs access credit. A key reason for this change is that fintech lending platforms have much lower customer acquisition costs than the banks and more traditional lending institutions and are able to service target niche customer segments that need small value loans. 

How FinTechs are Helping SMEs Financially

#1: Access funding and Supports Growth 

The number one thing that all businesses need to grow is the cash flow. There are also other things in your business to worry about – people, products, service – but these are all crucial because they impact cash. Growing your small or medium sized business puts a huge strain on cash. You almost always need to incur expenses and make investments before achieving the higher revenue and cash flow that comes with successful growth. Fintech has made it possible for SMEs to obtain the funding they need through online lending which is simple and fast with easier application experiences than possible through traditional financial institutions. 

#2: Crowdfunding

Another popular method of fintech lending is crowdfunding. This one of its kind form of financing products and services has led to the establishment and growth of many successful startups. There are multiple crowdfunding and small business lending platforms that host crowdfunding requests.

The best part about crowdsourcing platforms is that not only do they help entrepreneurs raise early-stage finance, they also help them connect with a community of potential customers and help them reach a market where they can beta-test and validate their project idea and also create a loyal community who appreciate their offering from the very beginning. On the other hand, where SME startup loans or purchase financing is required, fintech lending in the form of equity-based crowdfunding can be helpful. In this method, small businesses approach angel investors, individual investors, and venture capitalists to source funding for their company, in exchange for part of their company’s equity.

#3: Collaterals for loans and Interest rates

FinTech’s are constantly investing in building technology infrastructures with financial models, credit assessments and risk score tools by combining extensive data modelling and the latest technologies. They are able to easily extend this to the SMB context, and they are able to provide confidence in creditworthiness. FinTech’s help brings in transparency, bringing down the risk through more in-depth analysis of the business which banks themselves may not be in a position to do. This in turn brings down the risk premium or the interest.

Summary

The most immediate concern in today’s business environment is managing through the pandemic’s uncertainties and purchase financing. Fintech companies present several benefits that help businesses to pave for creating value and position themselves with resiliency in the market. Further, the integration of new-age technologies such as Artificial Intelligence, Machine Learning, Blockchain, and IoT in the financial world provides agility to businesses and rapidly delivers transformative experiences.

FinTech has beautifully connected markets and capital and has created magic by providing a plethora of options to SMEs. With businesses transitioning towards digitisation, fintech companies will capitalise on the opportunity to create new alliances with non-tech and non-digitised services.