During the mad scramble of 2020 into 2021, “going digital” for small- to medium-sized businesses (SMBs) might have meant just bringing in a mobile point of sale (POS), or possibly something more complex.
There is no one way, no boilerplate — and that makes lending to SMBs problematic.
Legacy banking wasn’t built around making it easy to apply for business loans, and many SMBs stayed away from digital options like neobanks because they simply didn’t understand them. For SMBs to make their digital shift, the lenders historically serving them need to shift also.
Speaking with PYMNTS, Anthony Ferraro, vice president and head of platform solutions at Amount Small Business, said we’ve crossed the Rubicon on modernization of SMBs — and a digital delivery model “is essential at this point for folks who are serving small businesses,” as is “staying on top of the trends, being nimble, being able to adapt in the environment we’re in today. I think that’s all pretty much top of mind” for banks and financial institutions (FIs) lending to SMBs in 2022.
In February, Amount announced its acquisition of Linear Financial Technologies, an important player in SMB loan and account origination. Linear’s platform for simplified online account origination workflows designed for SMBs has been rebranded as Amount Small Business.
For Amount, that acquisition helped the company refine an important product and service offering in a process that also requires some redefining in the new-next normal.
Ferraro told PYMNTS that in 2022, “[it’s about] defining what ‘digital’ means. That term gets thrown out a lot from a small business owner perspective, but also from a perspective of our clients who are serving those small businesses.”
It goes beyond a slick user experience and award-winning customer service — to rethinking the entire lending model. After all, while a great user interface (UI) is one thing, “if you’re then kicking that off into a highly manual process where you’re employing the same sort of manual [back end] that you’ve always done, you’re doing your customers a disservice,” he said.
Going deeper into the changes needed regarding SMB lending processes, Ferraro said many banks, FinTechs and other FIs need to get real about the failings of their current SMB loan programs.
“It goes to the point of reengineering the entire delivery process,” Ferraro said. “It’s leveraging third-party data to enhance your risk models. It’s leveraging that data to ask less of your customers, connecting to bank statements and bank accounts and accounting software, things of that nature.”
Lenders focused on SMBs are having to look at all workflows and touchpoints, from streamlined digital applications that fund the business all the way to the systems the business chooses, to help SMBs be the kind of business that lenders like.
Amount is making a splash with its buy now, pay later (BNPL) product for banks, and with the strategic acquisition of Linear, it’s making a play for another potentially massive market.
Pointing to “a huge opportunity in embedded finance on the small business side,” Ferraro said that providing loans along with advanced payment solutions for SMBs is “going to be one of the emerging places where we can plug in our clients to be at the point of sale to offer not only just payment solutions, but credit solutions as well that’ll really enable our clients and customers alike to be able to take advantage of those opportunities.”
SMB Lending Advances
When Ferraro described some of the ways that bank-powered embedded finance will find its way into transaction flows, a picture came together of what that could look like.
He talked about a farmer needing to finance a major equipment purchase.
“Instead of going through his bank, oftentimes he might be working through an equipment vendor,” Ferraro said. “But being there at the point of sale [and] able to offer those sort of financing solutions just by the click of a button, the same way it works on the consumer side, is really where we think there’s some opportunity.”
Embedded financing removes the need for tons of documentation and form work that’s now antiquated and may reject a good SMB borrower for the wrong reasons.
“We’ve designed our process around allowing a small business owner to do less [form work] and more of what their livelihood is,” Ferraro told PYMNTS. “What it means for the lender is enabling that. So yes, seamless and configurable user journeys are 100% needed.”
And it goes beyond that, so systems are “highly configurable where you can automate a lot of your risk policies, you can automate a lot of document collection or information collection where you normally would have to get that information directly from the customer,” he said.
Leveraging third-party data is a vital component here, too, as is automating and digitizing every possible aspect of the SMB loan process. Otherwise, “You really haven’t moved the needle for the customer or for yourself as the lender if you’ve just put your current paper application on your website as a web form, and it’s just kicking back into the same manual process,” he said.