WhiteSight

2023 Roundup: SMB Financing Gets a Makeover with Embedded Finance

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SMB Financing: Cat Bath or Credit Path? For small and midsize businesses (SMBs), trying to get a loan from traditional financial institutions may feel like trying to convince a cat to take a bath—challenging, frustrating, and often ending in scratches. Despite being the unsung heroes of the global economy, SMBs have been stuck in a quagmire, dealing with paperwork mountains, collateral hurdles, and credit history-perfectionist gatekeepers. A survey by EY highlights that 48% of SMBs yearn for swift credit access, as they find themselves grappling with loan processes so intricate they make a Rubik’s cube look like child’s play. Traditional credit models applied by incumbent financial institutions fall short in catering to SMBs’ diverse and rapid needs, leading to low approval rates and high costs of capital. The focus on larger loan sizes, reliance on credit bureau data, and an asset-centric approach contribute to the financial exclusion of SMBs with limited credit history from formal credit channels. This exclusion creates a cyclical dilemma for SMBs, as rejected loan applications prevent them from building a credit history, perpetuating their exclusion. Enter the world of embedded lending, which addresses several challenges that previously hindered market players from becoming lenders, such as the high […]

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