Personalized Loans Helps Small Businesses Break Their Funding Slump, Says Enigma COO

The secret of getting ahead is getting started.

After all, an object — or a business — in motion tends to stay in motion.

But for the small and medium-sized businesses (SMBs) that power the U.S. economy, just getting started is becoming harder than ever before as access to working capital and other financing solutions increasingly tightens due to macro pressures.

And in a painfully ironic twist, SMBs need funding more than ever due to those same macro pressures just to keep the ball rolling for their operations.

“What we’re seeing is an increase in need from small businesses for funding,” Scott Steinberg, chief product officer and chief operating officer at data intelligence platform Enigma Technologies, told PYMNTS.

“Nearly half of small businesses are planning to increase their utilization of alternative funding for their company in the next 12 months,” he added.

As businesses look to solidify their financial positions amid today’s inflationary environment, they increasingly seek emergent and alternative financing solutions.

“There’s been a higher increase in solutions like merchant cash advances form various FinTechs, and a lot of that is driven by underwriting that leverages new sources of data versus just a traditional credit score,” explained Steinberg.

See also: Leveraging Data to Close the Small Businesses Targeting Gap

SMBs Are Looking to Shore up Working Capital

The one thing that’s unanimous, Steinberg said, is that across all of the different funding types available to them — SMBs tend to prefer credit cards.

“That’s the easiest. It’s the simplest,” he added.

In complex operating times, sometimes simple can be a silver bullet.

Research in the 2023 PYMNTS report, “Main Street Health Q2 2023: Credit’s Key Role in SMBs’ Plans,” a collaboration with Enigma, finds that 4 out of 10 SMBs (40%) remained more worried about inflation than one year ago, with 15% increasingly concerned about declining revenues.

All this makes access to finance a critical consideration for businesses.

The way SMBs manage these ongoing concerns tends to vary from industry to industry and ties back to their unique working capital needs and the realities of their distinct go-forward roadmaps.

Steinberg said to think about it in two ways, the first being whether some segments need capital or financing more than others and the second centering around exactly what type of capital or financing they require.

“One thing we’re seeing is that the larger and more sophisticated the firm is, the more varied types of financing they’re looking for … there’s still a desire and use for business credit cards, but there is also a higher desire for solutions like lines of credit, working capital loans, merchant cash advances, and more,” Steinberg said.

Read more: Nearly Half of Main Street SMBs Shopping for More Credit

The Evolving Financing Landscape

As the financing landscape continues to evolve, understanding the evolving preferences and needs of SMBs will be crucial for lenders to stay ahead in the market.

One way that lenders can gain an edge is by working with alternative forms of data to identify which SMBs or market ecosystems offer the best fit for their type of product, as well as to better support the underwriting process.

Steinberg noted that SMBs tend to view larger lenders and traditional banks with a higher degree of trust and familiarity.

“Taking out a loan is a trusted relationship, and a lot of lending comes down to being able to personalize the product,” he said. “The more a financial institution can understand the SMBs they are working with, the better they can choose the financial product to deliver and the more attractively they can price it, which will lead to the best experience for the business.”

Still, he emphasized that a lot of personalization and customization also boils down to simple timing — what is the business’s cash flow cycle, and when does the financing need fit into its growth trajectory?

“On the prospecting side, understanding the seasonality of the business and its growth roadmap is really important for being able to not just personalize offers, but deliver them at the right time,” Steinberg said.

That’s where data comes in.

“The ability of the right data to augment and support the right decisions is only becoming more important,” he said.