| | June 2020 8The benefits of a thriving small and medium-sized companies (SME) sector are clear and regularly cited by governments and economists. In Singapore, SMEs account for around two-thirds of the workforce and a large chunk of GDP growth.But if these firms can't get funding, their failure to thrive has a dampening effect on the larger economy.For larger companies and multinationals, the options for accessing credit are established and numerous, but for sole proprietors and small businesses, the most frequent solution is to seek a loan.Their traditional route for sourcing loans has been to approach the banks, but for those with no credit history, insufficient collateral, or no proof of a stable revenue stream for repayments, credit solutions offered by banks have remained out of reach--a situation ripe for technological disruption.This situation was exacerbated by the Global Financial Crisis and subsequent credit crunch in 2008, when banks were no longer able or willing to extend credit of any kind, with smaller businesses taking most of the impact. With limited credit resources available, they found few alternatives to the established banks and difficult choices regarding the future viability of their businesses.Also, banks' processes, evolved over generations from pen-and-paper ledger systems, are too slow to be useful for SMEs in need of an injection of funds to keep their business running and fuel its growth.According to McKinsey, traditional banks' average `time to decision' for small business and corporate lending is between three and five weeks, while the average `time to cash' is nearly three months. For those needing access to short-term funding, this effectively renders a loan solution irrelevant, creating a class of businesses underserved by existing institutional offerings.How tech can helpInnovation and digitisation provides one way to breathe life into lending markets. Automating applications and back-office processes go part of the way towards delivering the kind of accessible solution that will ease SMEs' short-term needs.Many existing lenders have caught on to this necessity and in some cases have leveraged technology to improve their response times. But digital technology offers more than just a way of delivering efficiency to existing processes--it is proving to be a paradigm shift in how such businesses are structured and run.Putting pressure on the banks are FinTech firms which have the advantage of building their business and systems from scratch and remaining nimble. This enables them to move rapidly into the gaps not covered by the banks--filling the credit vacuum small businesses previously faced. They are bringing much-needed innovation to a space that has remained traditional for too long.Harnessing the potential of new technologies such as blockchain, big data and smart analytics enables new business models to emerge: FinTechs have swiftly realised that analysing client data, including the flows of payments and remittances between counterparties, gives them a powerful tool for accurately assessing risk and creditworthiness.Also, digital networks enable innovators to establish lending models that don't rely on large intermediaries to manage risk and provide liquidity. Alternative forms of James CheowOPINIONIN MYHOW FINTECH IS DRIVING INNOVATIVE LENDINGBy James Cheow, CEO & Co-Founder, Capital C Corporation
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