Business information services have typically been dominated by large clients, particularly in the areas of finance and banking. But that could all be about to change – it’s time to focus on the little guys. It’s all about empowering SMEs. As such, how do you readdress your commercial lending to meet their needs?
Within the business information market there is a growing expectation of a significant change across multiple sectors. Brexit, a shifting economy, and huge regulatory moves in the commercial data market are all expected to play their part.
One significant upshot, could be a new focus on helping SMEs get the products and services they need either directly, or by helping larger clients to serve their SME customers more effectively.
So, where might the focus lie? One area could be on improving your use of commercial data. Perhaps, through the use of APIs. Using your data to its best ability will help you better assess the credit risk of businesses, it can also help you grow and be less impacted by new entrants that are catching the attention of your customers.
The new tradition
The market is swiftly being approached from FinTech. Peer to Peer lenders are expressing an interest in SME lending by offering a funding opportunity that many businesses aren’t able to access via larger, established lenders. The UK and EU lending market has increased significantly this past year through alternative lending – capturing 72% of the total business lending in 2016 – according to KPMG.
Niche lenders seem to be the ones who are embracing the opportunity by investing in SME. This may be a result of the government incentives, or the evidence of a growing opportunity.
SME business owners are becoming savvier too. Research suggests they are now, more than ever, aware of the choices available within SME lending – which is no longer constrained to traditional banks. Much of this success has been a result of new entrants providing more personalised, digital partnerships that are appealing to the business owner.
Don’t dismiss the people that sit behind the business
When assessing small businesses it is essential to take account of the people behind the business as well as the business accounts. This will give you a true picture of the risk and opportunity of the business through blending both. The following are useful areas to review:
- Personal Scores
- Outstanding credit limits and balances
- Details on poor performance (over limit, arrears)
- Spending, and behavioural trends
- Personal assets and security
In particular, personal data adds significantly to business data for new affiliations such as start-ups or weak relationships.
The value comes from the predictability which is often lacking in business data. This is due to it not having much history to inform the prediction. It has less impact on established relationships, due to the amount of predictive business data that you can access.
Data can be used in a variety of ways to support you with the pre-population of UI data(such as Limited company registered details and key parties).
Integral to on-boarding is the need to ensure it meets the stringent AML/KYC criteria of knowing exactly what the business actually does, who the key people are (and anyone with significant control), and who the ultimate beneficiary owners actually are.
It is essential to ensure your risk of fraud is minimised at the point of on-boarding and so Experian has a fraud offering covering both data services and solutions too.
It is also essential to understand the credit risk profile of the business and the people behind the business to ensure the appropriate risk measures are applied. Accessing new and relevant data sources can help you with this. It can help you to create a complete picture that helps you lend the right people the right money. In turn, it can help you increase your confidence and your lending levels which are both important for regulation and lending overall.
SMEs offer a huge opportunity and many are poised to be the next big thing. They are growing and shaping their offers in many different ways. Be sure to use the right equipment such as technology, data assets and software in order to help you best serve their needs moving forwards. With this, we can help.