As the world economy begins a new credit cycle, financial analysts at Credit-10 assert that there is a chance for more profitable growth if banks and lenders restructure their SME lending policies. By rethinking old policies and adopting more responsible borrowing principles for small and medium-sized businesses, they can meet the need of these businesses and capture the forecasted growth in the lending industry.
How Important SMEs Are?
Small and medium-sized enterprises (SMEs) play a significant role in the United States economy. According to the Small Business Administration (SBA), there were approximately 31.7 million small businesses in the United States in 2022, which accounted for 99.9% of all businesses. SMEs also accounted for 47.1% of total private-sector employment and 44% of private-sector GDP in 2022.
SMEs are important not just in the United States, but in the world economy as a whole. SMEs make up a significant portion of businesses worldwide and contribute to economic growth, innovation, and job creation in many countries.
According to the International Council for Small Business (ICSB), SMEs account for over 90% of all businesses worldwide and contribute to more than 50% of employment. SMEs also contribute significantly to GDP in many countries, ranging from 20% to 70% depending on the country.
SMEs are important drivers of innovation and technological development in many industries, as they are often more flexible and agile than larger firms. They are able to quickly adapt to changing market conditions and customer needs, which helps to stimulate competition and promote efficiency in the market.
In addition, SMEs are important contributors to international trade, with many countries relying on SMEs to promote exports and boost their competitiveness in the global market. SMEs also create significant employment opportunities, especially in rural and underdeveloped regions, which helps to reduce poverty and promote inclusive growth.
The Potential of Responsible Lending for Small and Medium-Sized Enterprises
The global pandemic marked the end of the last credit cycle, and its impact was felt by many businesses worldwide. Moving on from it took some time, given its intensity. According to a World Bank report, the unresolved financial needs of micro, small, and medium-sized businesses worldwide are estimated to be around $5.2 trillion annually, which is approximately 1.5 times the size of the current lending market for these businesses.
However, the report highlights that banks struggle to find the perfect lending solutions for their SME customers, often categorizing them as corporate entities and charging high borrowing costs. Recognizing these businesses as highly sophisticated retail customers can solve this problem, benefiting both businesses and lenders, and creating a win-win situation.
Reimagining SME Finance By Building Sustainable Lending Models
According to Credit-10 analysts, there is a growing trend towards successful lending models for small and medium-sized enterprises that prioritize responsible lending practices. These models are built upon a foundation of strategy, process, analytics, and operating models. Reimagining small business customers as retail customers is a crucial step toward creating a new SME lending model that benefits all parties involved.
Automated lending can address the issue of delayed funding, while outdated legal policies can be revised to better meet the evolving needs of customers. Additionally, the target model must incorporate new approaches to collaboration with a centralized credit authority and service operations to modify business models, boost regulatory readiness, efficacy, and efficiency.
Credit-10 is an international analytical site that provides information on lending offers and allows to choose a profitable online loan. Service operates in 15 countries, including Denmark, Norway, Finland, Sweden, South Africa, Mexico, Poland, Romania, and Spain.