The majority of SME borrowers see the value in sharing real-time financial data with their lenders, shows a survey by Monto. Time for your lending business to take note, pronto.

The article at a glance:

1. Why SME lenders should work with real-time financial data
2. SME attitudes when it comes to sharing financial data (Sweden)
3. How SMEs perceive lenders’ ability to understand their performance today
4. How your business can access fresh financial data with one API

Most SME lenders make credit decisions based on outdated or substandard information — previous years’ annual reports, static credit bureau information, or financial statements provided ad-hoc by businesses themselves.

These manual methods of data collection (and analysis) are ill-suited to serving the SME segment. The needs and circumstances of newly founded, growing, or seasonally fluctuating businesses differ vastly from those of big corporations. The industry has only recently started to act on this.

To get financing on fair terms, SME businesses need lenders to truly understand their business, day to day. They also want credit lines that grow with their revenues, seamless onboarding, fast payouts, and tailored prices.

All of these things are, ideally, founded upon access to real-time financial data.

1. Real-time data brings new opportunities for SME lenders

Up-to-date financial data from accounting software has the potential to transform how lenders do business with the SMEs.

A key driver behind this trend is that an ever-growing share of SMEs are running their bookkeeping through cloud providers. Another one is the challenge posed by global, macroeconomic dynamics (pandemic, inflation, etc.), and the resulting need among lenders to know how SMEs’ creditworthiness is being affected in real time.

By accessing and extracting insights from fresh, well-structured datasets, credit teams can form a proper understanding of an SME business’ current situation – and, therefore, perform vastly better credit risk assessment and underwriting.

Let’s summarise some key benefits:

• Up-to-date invoicing, balance sheet and income statements can show key developments in any business, even newly founded ones
• Faster and smarter onboarding, credit decisions and add-on financing services
• Credit and Relationship managers can commit fully to value-add activities, instead of wasting time on data collection
• Lenders can reduce overheads and defaults while increasing customer acquisition, retention and upsell opportunities
• Lenders can meet the needs of growing businesses throughout their journey
• Real-time monitoring allows lenders to understand both individual companies and entire sectors, and take action before it’s too late

“55 percent of businesses say they are open to sharing their real-time accounting data in exchange for faster application handling and better pricing”

2. Many SMEs are eager to share their real-time financial data

The exciting news is that the SME sector is warming up to services powered by real-time data. We recently conducted a survey among SMEs in Sweden, and it shows that a majority are open to the types of connected lending experiences we outlined above.

• More than half, or 55 percent, of businesses say they are open to sharing their real-time data from accounting software in exchange for a faster lending service and/or more attractive pricing.
• Another 14 percent say they are undecided; the remaining 31 percent say no.

We expect the share of businesses willing to share their data to grow as the market evolves – and more SMEs learn about the exciting services that lenders can deliver by utilising fresh data.

“The big takeaway is that a major share of the SME market is ready for a better, smarter version of your lending business.”

3. SMEs aren’t too happy with lenders today

Considering that most lenders today make credit decisions based on fragmented information, there’s reason to believe that SME businesses are feeling some of the downsides. So we asked SME businesses how well they thought lenders understand their ongoing financial performance.

The respondents gave their lender a median score of 6 out of 10. While a sizable chunk of SMEs gave high marks to their lender, it’s clear that many struggle to access financial information sharp enough to generate fast and accurate credit decisions.

"Two-thirds of SME businesses in Sweden have to manage paper documents when applying for financing."

Moreover, lending in 2023 is still surprisingly offline. Two-thirds of SME businesses in Sweden have to manage/provide paper documents when applying for financing, our survey shows. Almost as many have to do physical meetings or phone calls.

Yes, it’s true that lenders have been upgrading their data collection and risk assessments in recent years. But even the more recent data source additions aren’t quite cutting it. Here’s why:

• Open banking data is no silver bullet. Many lenders are working with PSD2-based transaction data to enhance their understanding of SMEs. But bank account data can only provide a partial snapshot, in addition to being difficult to categorise.
• While it’s become common among lenders to request Income Statements and Balance Sheets directly from the borrower/applicant, doing so on an ad-hoc basis has many drawbacks. Fetching this data involves manual work for the SME – and the information lenders receive tends to be of varying quality.

4. One API can provide instant access to real-time financial data

The key takeaway from our analysis is that a major share of the market is ready for a better, smarter version of your lending business.

Lenders, both incumbents and challengers, have an important decision to make: keep making incremental improvements to existing processes, or leverage new technology to vastly improve the capacity to serve and delight SME borrowers.

The best time to act on this opportunity is now. With economic headwinds bringing uncertainty and risk aversion to the market, the lenders that have a deep understanding of their borrowers’ ongoing performance will gain a competitive edge.

Monto’s mission is to empower lenders with a comprehensive understanding of their borrowers – allowing them to spot new opportunities and stay on top of borrowers’ cash flow needs. Monto’s API and app enable any lender to securely start accessing real-time financial information with the customer’s full consent, starting today.

If you’re interested in our platform, don’t hesitate to get in touch at hello@monto.ai

About the Monto/Netigate survey

Our SME financing survey was conducted in November 2022 in collaboration with Netigate and Capcito, a direct lender and our sibling company. All 670 SME businesses included were actively using or had in recent years used external financing.

Since the sample size in our survey was limited, the numbers should be seen as indicative. Other industry studies have found even more “bullish” trends when it comes to data sharing. A 2021 survey by EY comprising thousands of SMEs in the UK found that 8 in 10 are eager to share data with their financial provider.