Blog: Social benefits for flexible and fair SME loans
In Sweden, 99% of all companies are so-called SME companies with fewer than 50 employees. They account for 80% of all employments and can be seen as the driving force in the Swedish economy both for creating new jobs and increasing tax revenues.
Today, the total lending to these companies only amounts to about €1 billion. This can be compared with unsecured consumer loans amounting to almost €28 billion. If you can offer simple and flexible business loans that will help companies grow and hire new employees, the growth potential and societal benefits are enormous.
Consequently, more than half of the companies – 55 percent – state that the single biggest challenge for growth is financing.1 What are the reasons for SME companies to experience difficulties in accessing traditional bank financing?
There are several explanations for this. One obvious reason is that traditional banks have increased costs for issuing business loans, due to regulatory requirements regarding control of money laundering, customer knowledge, and documentation. This means that smaller loans are no longer as profitable for traditional banks. Hence, customers do not get the service they deserve, and lending processes become unnecessarily complex and time-consuming.
To remedy this, a strong trend in the financial market is to offer SME companies a digital loan application process that is both quick and smooth. One company that has succeeded to offer this is our customer Fedelta Företagslån. They gain market share by offering attractive loans with an easy-to-understand competitive pricing, and with an automated process that gives the customer fast decisions and access to funding.
Another important factor for the growth potential in SME loans is the availability of new data sources that improve the scoring and monitoring of companies. Today you can automatically integrate towards sources where you daily can follow updates about the company’s economical health instead of relying on last year’s annual report. This results in more accurate scoring and the ability to early catch any warning signs, and with these uncertainties reduced, the loan provider can issue more attractive loans.
From a macroeconomic perspective, it is very important to facilitate the capital injection for small businesses, so that they can expand, create tax revenues and jobs.
1 According to a survey conducted by the Företagarnas Financing Report 2019.