Serving SMEs is a challenge for the banks. The SME lending business is attractive because it offers a large customer base with significant and long-term earnings opportunities. However, management of requirements and individual support demand considerable resources. Digital processes are crucial to ensure efficiency, transparency and customer focus in the lending business for SMEs. We go into more detail about the meaning of digital lending processes for SMEs.
Background
Lending to small and medium enterprises (SMEs) is particularly attractive for banks because SMEs represent a large customer base and offer significant growth and revenue opportunities. Many SMEs need financing to expand or to maintain their operations. This allows banks to generate stable revenues and higher returns per customer relationship. SMEs usually value personal attention and long-term relationships with their banks, which leads to higher customer loyalty. Serving SMEs helps banks to diversify their portfolio and better spread risk, as SMEs operate in a variety of industries.
However, economic uncertainties such as the pandemic and or energy crisis require banks to provide flexible solutions. Lending to SMEs is adversely affected by paucity of resources, outdated technology and bureaucracy. Banks often lack the capacity to manage requirements effectively. Complex regulations and documentation requirements use up valuable resources that limit growth potential. These factors demand strategic adjustments and investment to improve financial stability and efficiency. Digitalization gives the banks the means to make their services more efficient and cost-effective.
Investment criteria
Banks view digitization as an investment decision, i.e. as a way to improve their future business. Digitalized processes are of great importance, as they ensure efficiency, transparency and customer focus in SME financing. Automating processes allows the banks to work faster and more cost-effectively. It reduces the time spent on manual activities. SMEs and other customer groups benefit from these improvements. These digital solutions strengthen competitiveness against rivals such as fintechs.
Individual decision criteria are important in such investment decisions. They prioritize investment in processes that need a lot of manual work or require frequent customer interactions. The selection is often based on a cost-benefit analysis and the strategic importance of the process for the bank. Ultimately, digitalization helps banks to be competitive and meet changing customer needs. We regularly talk to our customers about their selection process and have summarized their selection criteria below:
🌟 Customer satisfaction: process design should improve the customer experience. Relevant improvements include personalization of offers, faster processing times, better accessibility/availability and better visibility of the loan application processing status.
💸 Increased efficiency and reduced costs: Digitalization and especially integration into existing banking IT can help automate manual and repetitive tasks. This increases efficiency and reduces errors leading to the long-term cost reduction.
🛡️ Security and compliance: Banks make certain that processes meet the legal requirements and security standards in the credit sector. Success factors include integration of security measures, automated tests and transparent reporting.
💪 Employee acceptance: employees live with the new digital processes and use them. Their acceptance depends on the perceived efficiency and effective improvement in customer care. Customer focus, traceability and transparency in credit applications are essential.
Relevant processes
Very step is crucial. It starts from the first request and the assessment of the financial needs and of the SME. It goes through the examination of the creditworthiness and the submission of the necessary documents up to the final approval and disbursement of the loan. Let us take a closer look at these processes and understand how digitization can work:
📝 Loan application (incl. 🆔 identification and credentials): Entry and checking of the loan request from a new customer including submission of the necessary documents and initial credit check. The KYC process (know your customer) is also carried out to determine the beneficial owners and to identify the contractual partner and the persons representing the customer. The data input of external systems such as e.g. identification and credentials services, open banking and financial data access or credit check.
🔄 Inventory changes: update of customer data and credit conditions in the event of changes in the customer’s inventory or in case of extension of existing loan contracts. Efficient management and updates of customer data should be done using CRM systems specially tailored to the needs of SMEs.
🤝 Approval of individual customer conditions: definition and approval of specific credit conditions based on the individual creditworthiness and customer needs. Automated systems and user-friendly interfaces minimize manual input and improve data quality.
📊 Existing customer and overall liabilities check: this is the check of the existing and new commitment of the applicant company. This enables the recognition of relevant loan disbursements and the identification of connected natural persons and legal entities. This requires financial analysis tools that have been specially developed for SMEs to make it easier to monitor credit liabilities and creditworthiness.
⚠️ Overdraft reporting: creation of reports on overdraft and initiation of appropriate measures to minimize risk. Requires the implementation of automated notification systems that inform you immediately of overdrawn account and propose simple measures to limit risk.
🏢 Securities valuation: regular valuation and documentation of real estate – including that outside of current financing. Use of digital valuation platforms developed for SMEs to efficiently evaluate and document collateral.
📅 Balance sheet prolongation: regular collection of accounting information and its assessment. Requires automated submission systems that are tailored to the specific financial needs and credit ratings of SMEs.
Conclusion
The digitization of SME credit processes offers significant advantages 🚀🚀🚀: It enables more efficient and faster processing of credit applications and other processes. This increases customer satisfaction and strengthens the bank’s competitiveness. Automated systems reduce the risk of human error and improve the accuracy of risk assessment. Additionally, digitization lowers operating costs through optimized processes. Overall, the digital transformation leads to better use of resources and helps the bank to be more flexible and customer focused.
Are you ready to digitize your loan processes? If you want to raise the efficiency and speed of your SME loan processes, you have come to the right place. Our credit solutions offer seamless integration that optimizes your work processes and thrills your customers. Let us shape the future of lending together. 📧 📞 ☎ Contact us and discover how simple and effective digitization can be.
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Note: AI was used in the creation of the basic version of this article (GPT-4) and the images (dall-e-3).