In past decades, SMEs have struggled due to the large monetary gap mainly because the lenders could not offer the required lending product. But now, thanks to revolutionized ways of managing historical data to turn it into forward-looking data and technologies. Due to this, lenders can fulfil borrower’s needs.
The key areas due to which lenders mainly failed to meet the loan demand of SMEs are:
- Risk issue
- Extensive Unorganized data
- Obsolete technology
However, as we are living under the crises of the pandemic, the historical data trend is going to hold less of the importance right now as historic data was “then” and the pandemic impact on financial data is “Now”- the New Now. Hence in this crucial period, it is the need of the hour to get in touch with advanced fintech to predict data. The research shows there is a massive decline in the traditional approach for processing loans. Besides that, several other constraints around the traditional lending process have been recognized under the pre-pandemic period. Those are:
- The loan dealing process takes a lot of time.
- Reluctance to lend money under the guarantee of intangible assets.
- Manually managing the financial extensive data.
In the time of the pandemic, the business model of the lending process is taking a drastic shift where loans are applied digitally and using advanced systems, lenders are working towards predicting the futuristic accounting and financial data of a borrower to attain a smooth lending process. Therefore, it’s time to build the balance between existing borrower’s data and combining it with financial technology to obtain forward-looking data.
Identifying the pattern in the data while considering pre-post COVID will aid lenders in evaluating the extent to which borrower’s relevant components like; revenue, expense, cash flow got affected.
The forward-looking data can help lenders in understanding the complete life cycle of a borrower. Forecasting the key financial elements provide certainty in determining how fast and effectively the money would be utilized. Moreover, forecasting borrowers Account receivables and Payable periods not only helps in identifying the borrower’s risk profile but also the borrower’s customer’s risk profile.
In addition to this, the borrower’s potential investment or financial opportunities can also be determined by the lenders. Therefore, based on forward-looking data, lenders can add or subtract the point in their loan agreement or charge the interest rate by evaluating the present and future financial health of the borrower. Along with it, underwriters can speed up their lending decisions while simultaneously keeping the lending process cost-effective.
In the absence of forward-looking data, there can be a high probability for lenders to run into bankruptcy or making the wrong investment in form of giving loans to fraudulent borrowers.
