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Expanding SME Lending through Flexible Decisioning Models

90% of businesses worldwide are small and medium enterprises, or SMEs

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  • Written by  Robin Smith, Regional Vice President, North America, Mambu
Expanding SME Lending through Flexible Decisioning Models

90% of businesses worldwide are small and medium enterprises, or SMEs, according to data from the World Bank. These businesses create jobs, contribute to local and national economic growth and maintain the spirit of entrepreneurship. Unfortunately, outdated systems prevent SMEs from acquiring the capital needed to fund their dreams.

Two-thirds of small and medium enterprises (SMEs) in the US were unable to secure enough, or any, funding to cover the needs of the business on at least one occasion, according to a Mambu-led report that surveyed over 1000 SMEs that applied for a loan in the last five years. According to the survey respondents, internal sources, like contributions from family and friends or personal funds, are the main sources of starting capital.

If banks and credit unions “get in on the ground floor” of an SME and build a relationship from day one, they have customer loyalty and options to share other product offerings. However, banks struggle to identify SME lending opportunities due to outdated decisioning models.

Outdated Decisioning Models

Outdated models are a barrier to SME success. Typically, banks use limiting criteria, such as the number of employees or business revenue, to segment SMEs from larger commercial clients.

Most traditional financial institutions think about small business banking or lending in the traditional way that they have treated that market segment. Banks ask SMEs, “what were the organization’s revenues over the last five years? What was the profitability over the last 5 years? How many employees do they have?”

These questions and the existing parameters around small businesses are out-of-sync with what the market is doing; the number of entities considered small businesses is exploding quarter-over-quarter, and they do not look like the small businesses of the past. Now, it is normal to participate in the gig economy and have a side hustle. Unfortunately, banks often do not recognize this revenue stream as adequate for a loan.


Lenders must transform their financial experiences to ensure success for SMEs, who are the lifeblood of the global economy. Rather than implementing outdated legacy systems, banks should consider a ‘speed boat’ initiative to address innovation in the SME segment — meaning creating a new digital offering connected to a modern API-first lending servicing engine. Accessing borrower data is the key to approving more loans with less risk.

This approach enables the institution a speed to market advantage and delivers a platform agile enough to adapt quickly as the definition of a SME changes and the needs of the SME customers evolve. Also, financial institutions can address unique markets, such as a program oriented around a niche vertical, and implement more flexible standards for extending a loan to a SME that can address gig economy workers.

The Time Is Now

Launching services that are specifically designed to meet customers’ unique financial needs versus trying to fit them into a convoluted standard set of general product offerings and digital experiences will offer new avenues for financial institutions. As financial institutions of all sizes take advantage of the growing market in SME lending, modern technology allows more banks to enter this growing market.

About Robin Smith
Robin is the Regional Vice President of Mambu in North America. Responsible for leading the Mambu sales and business development efforts across the United States and Canada, Robin has gained comprehensive experience and success in building national and international teams for software, professional services and business process outsourcing to the financial services industry.

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