Mambu: SMEs to face shrinking access to capital

The ‘Small business, big growth’ report surveyed over 1,000 SME owners globally, who set up their company and applied for a business loan in the last five years. It reveals that reliance on personal networks has increased 11% during the pandemic, with shrinking access to external capital for SMEs.

Despite the boom in new SMEs created in the last two years, access to funding remains a constant roadblock with 32% of these businesses having trouble securing starting capital, rising to 33% of SMEs launching soon. 

Nearly half (43%) of SMEs had to rely on friends and family for loans overall, with this figure rising to 47% among businesses launched since March 2020 and 48% of those launching soon. Of the SMEs unable to secure sufficient funding, 34% experienced cash flow issues, 33% were unable to launch new products or services and 30% were unable to hire effectively – a major impact amid the ‘Great Resignation’.

For larger SMEs, with 101-250 employees, being unable to access funding has curtailed their ability to hire (40%), scale-up (36%), or pay for upgrades or improvements (36%).

Mambu’s findings come amid a rise in alternative lending, as SMEs turn to challenger banks and fintechs to overcome common barriers. The opportunity for new entrants is clear as the vast majority (92%) of SMEs say they are open to changing lenders for different or simpler digital support. 

Nearly half (49%) of SMEs cite better borrowing benefits and incentives as the top reason to change lenders. Meanwhile, 47% would switch for better financial options and 35% for improved digital services. 

Demand for more digital options appears to be directly related to the pandemic. Two thirds (66%) of both SMEs that launched after March 2020 and those set to launch soon said that digital services are an important lending consideration, versus just 53% of businesses that launched before this date.

Financial institutions must do more to tackle challenging application processes for loans. The research found that the length it takes to apply for a loan is a major influence on SMEs when choosing a lender. A short application process was cited among the top three most important considerations when trying to secure external financing by more than three quarters (76%) of global SMEs, tied with long-term repayment terms (76%) and narrowly behind low-interest rates (81%).

When it comes to improving the application process, most SMEs reported interest in faster loan decision processing (79%), more flexible loan conditions (78%), tailored offers and services (76%), and low or no collateral requirements (75%).

The most common barriers to securing funding among SMEs are not enough starting capital (30%), too much paperwork and admin in the lending process (28%), and cash flow not being considered strong enough (27%).