We asked 700 SMEs about their financing habits (and banks have plenty to worry about)

Published January 25, 2023

A survey by Monto shows that half of SMEs in Sweden are now securing their financing from alternative or fintech lenders. Moreover, four in ten businesses are planning to change their financing partner in the near future.

The market for SME financing is evolving fast. The digitisation of finance and rise of challenger lenders – coupled with new, pandemic-fuelled customer behaviours – have drastically redrawn the financing landscape in the past years.

But few stats are available to quantify this trend. To get a better sense of where the market, we decided to go straight to the source. We asked 667 small- and medium sized businesses based in Sweden a series of questions about their behaviours and preferences with regards to financing.

Firstly, we wanted to understand the market’s general makeup:

* 50 percent of SMEs have legacy bank as a primary source of financing

* 33 percent are customers at alternative lenders, either traditional or modern

* 18 percent get their financing from fintech challengers

* 9 percent use public sources of financing

Analysis: A more diverse financing landscape

While we don’t have a historical baseline to compare with, the results indicate that banks’ market share in Sweden is being challenged by alternative and fintech lenders. The latter categories are also expanding financing to new corners of the market.

Historically, SME businesses have had a tricky relationship with banks. Whether it’s convincing a banker of growing revenues (beyond past years’ annual reports), or getting access to funds fast enough to seize investment opportunities, securing capital from a bank has for most businesses been either slow, stressful or simply impossible.

Granted, banks remain the biggest single source of capital for SMEs. They are also investing heavily to enhance their offering towards that segment. And many businesses are indeed happy with their bank relationships. Once approved as customers, they value the predictable, relatively affordable financing services that banks can offer.

“Alternative and fintech lenders targeting SME businesses are now generating billions (SEK) in annual revenue. The growth is largely driven by players that provide easier ways for SMEs to access working capital.”

There’s just two problems. One, SMEs account for 99,6% of all businesses. Two, serving smaller businesses at scale requires focus and modern capabilities. Banks are too weighed down by legacy processes to serve existing demand today, or to drive the innovation that’s required to close the funding gap tomorrow.

It’s quite logical that entrepreneurs are turning to alternative players to secure their growth capital. Michael Hansen, Monto’s co-founder, comments:

“Alternative and fintech lenders targeting SME businesses are now generating billions of SEK in annual revenue. This growth is largely driven by players that provide easy, safe ways for SMEs to access working capital. Many are specialised in invoice financing or excel at efficient application handling. We’re still in the early days of an exciting diversification of the financing market, and that will ultimately benefit a large number of businesses.”

Key drivers behind a more diverse financing market

* The number of financing providers has grown in recent years, in particular digitally–minded challengers targeting SMEs with tailored offerings.

* Accounting providers, such as Fortnox (Monto’s parent company) and Visma, are doubling down on financing offerings aimed at their installed customer base through an embedded finance model.

* Most businesses today expect services that are as seamless as consumer services. The pandemic’s “time-machine effect” on digitisation has accelerated the sophistication and availability of online lending services.

* The SME segment is driving a growing share of GDP, resulting in bigger demand – and a recognition among lenders that SMEs are a huge business opportunity.

* The growth of lending brokers has spurred increased transparency and competition in the market.

4 in 10 businesses are planning to change their lender

Another key finding is that businesses in Sweden are proactive about choosing the right partner for their needs. A substantial 38 percent are planning to change their primary financing provider within the next two years.

18 percent say they are on the fence (“not sure”) about a change. All things considered, it’s clear that legacy banks and alternative players are going to be competing fiercely to capture this business.

“Traditional banks are facing the challenge of becoming more efficient and digitised, which would allow them to compete on an equal footing with nimble and customer experience-focused challengers. Challengers and alternative lenders, meanwhile, have more work to do in building trust and brand recognition with SME businesses, as well as getting access to cost-efficient funding,” says Michael Hansen.

Financing services used by SMEs in Sweden:

* Business Loan - 38%

* Sell Invoice - 34%

* Invoice Discounting  31%

* Credit Line / Revolving Credit - 18%

Thank you for taking the time to read about our survey results. More fresh insights will be dropping soon!

If you have any questions or want to get started with Monto’s API for financial data, please shoot us an email at hello@monto.ai

About the survey

* The survey was conducted in November 2022 together with Netigate, a leading panel research provider, and Capcito, our sibling company. The respondents representing SMEs were predominantly business owners, CEOs and CFOs.

* The survey respondents were able to choose more than one primary financing partner, explaining why the tally amounts to over 100 percent. Half of the 1,337 initial respondents hadn’t used (or simply hadn’t been able to access) any external financing in the past two years, and were excluded from the survey.