How real-time financial data can power up your SME lending business

Published May 30, 2023

Here are 5 reasons your lending business should use real-time data from accounting software.

Small and medium-sized businesses are, still today, massively underserved when it comes to getting access to financing. One major reason behind this is the inability among many lenders to accurately assess the performance of their borrowers.

SME businesses generally have fluctuating, fast-growing or seasonal revenue generation. Their circumstances change fast. This means that lenders who don’t have the latest information available (which is most lenders) will either have to deny applications from solid businesses, or take excessive risk.

Here are some common data sources that SME lenders are using:

  • Generic credit bureau data
  • Collecting statements and invoices from customers, ad-hoc
  • Too much reliance on historical data, like dated annual reports
  • Open banking data that provides only a limited understanding

The potential of real-time accounting data

New technology and connected services are changing the lending landscape. Open finance – a growing access to financial data that can be shared between financial providers and businesses –  promises to change SME financing for the better.

Detailed financial data basically captures the heart and soul of a business, and gives lenders opportunities to vastly improve the speed, efficiency and intelligence of the funding process.

“Solutions that provide access to comprehensive real-time data from the accounting systems used by SME businesses empowers lenders to make more informed decisions and, ultimately, increase their acceptance rate without adding risk,” says Leonard Schreij, the CEO of Monto. “If managed right, it’s a win-win for lenders and borrowers.”

READ: SMEs are open to sharing their financial data – are lenders ready to act?

Key Accounting Data Categories

  • Invoices
  • Balance sheet
  • Income Statement
  • Vouchers and non-financial events
  • Financial KPIs & metrics

Although there is a broad spectrum of possible uses for real-time financial data that vary in terms of sophistication and required investment, any lender that involves this data into their funding process can find improvements.

Here, we list 5 key benefits of using real-time financial data in your funding process.

1. Improved onboarding and customer experience

Too many lenders overwhelm their customers with form filling and other time-consuming interaction.

When we recently surveyed 700 SMEs in Sweden, 7 in 10 (!) businesses said they have to manage paper documents during an application process. Nevermind the cumbersome user experience – the information gathered manually from customers and other providers is likely insufficient to give lenders a realistic picture.

By facilitating connectivity to accounting data through APIs – either in-house or through third-party providers – lenders can make data sharing a seamless part of onboarding or add-on financing. This reduces operational costs related to data collection while enabling faster application handling and payouts.

How Float enhanced its onboarding process with Monto: “Our applicants can grant access to their accounting software in seconds"

2. Better data, better decisions

Lenders need accurate information in order to make solid decisions. Through a comprehensive view of SME financial performance based on up-to-date information, your team can assess risk more accurately.

With accounting and invoicing data synced automatically, lenders can gain the confidence to extend credit to young and promising businesses – for instance based on stable invoicing activity or strong ledger quality. Real-time data also empowers lenders to understand how everything from pandemics to price shocks is affecting borrowers.

"Traditionally, lenders have been providing financing services through a one-size-fits-all approach. This is problematic for the SME segment, where the only certainty is change."

3. Grow with your borrowers

Traditionally, lenders have been providing financing services through a one-size-fits-all approach. This is problematic for the SME segment, where the only certainty is change. Some businesses have seasonal dips in demand whereas others expand at breakneck speed, and yet others require capital for major one-off investments.

Few lenders are sensitive to these nuances and fail to adapt to their borrowers’ changing needs. Equipped with a deep enough understanding of a borrower's journey, a lender can reach out and offer add-on financing at just the right time (and grow customer retention and satisfaction along the way).

4. Provide a personalised financing service

To a growing extent, SME businesses want financing services to be seamless, simple and personalised. In a similar vein that consumers learned to expect frictionless and curated services – from streaming to e-commerce – small and medium-sized businesses have grown accustomed to more and better choices, in no small part thanks to fintech challengers.

In fact, both old and new lenders have made progress on speed and simplicity through digital user journeys. Much fewer have backed this up with personalisation, which naturally requires an in-depth, ongoing understanding of customers.

A personalised financing service, ideally, should be the business’ reward in exchange for sharing data. For instance, lenders can offer discounts on interest rates or fees; adjust the loan limit in line with invoicing activity; or provide bundled service offerings.

"Finding that balance between caution and confidence often depends on having the right information available, at the right time."

5. Get a leg up on the competition in tough times

Lenders are always ready to go to great lengths to avoid excessive defaults. Especially in today’s shaky market environment, banks as well as alternative lenders are becoming more conservative and wary of their risk exposure.

But, as the saying goes, never waste a crisis.

This is a great opportunity to leverage technology to capture business that your competitors won’t. Finding that balance between caution and confidence often depends on having the right information available, at the right time.

A key advantage of real-time accounting data is how it complements other data sources (like open banking) to create a holistic financial picture of a business. There's also an opportunity analyse historical datasets in order to project future cash flow generation, allowing your lending business to see the future before it happens.

Keen to learn more?

Monto’s API is your single access point to SME accounting data in Sweden.

Check out our offering