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Unlocking SMB Growth Through Automation and Embedded Lending Solutions
Successfully launching a small business (SMB) is no minor feat, as nearly 50% of small businesses fail within the first five years. At any given time, nearly 33% of business owners experience challenges accessing the necessary capital that they need to grow. Quick, reliable access to working capital is critical for small business owners and often means the difference between maintaining their operations or shutting their doors.
Recent tariffs, supply chain disruptions and macroeconomic fluctuations are currently impacting SMBs by narrowing their already-tight cash flow and to counter this, many business owners are looking to their local community financial institutions (FI) for assistance.
The problem for business owners is that too often, small business lending is a slow, complex process with cumbersome manual review workflows and rigid documentation requirements. Additionally, outdated legacy systems and siloed customer data hinder community FIs’ ability to scale their SMB lending programs to meet demand because these obstacles slow down the loan approval process and prevent institutions from effectively assessing borrower risk.
Addressing these issues depends on an institution’s selection of technology. With so many third-party vendors on the market, it can be overwhelming for FIs to choose the one that best serves their SMB financing needs. FIs should prioritize technology that enables smart, secure lending decisions such as AI-powered credit models or automated KYC and KYB checks.
AI-powered solutions can extract and classify this data in seconds and significantly reduce document review time. Some automation even uses machine learning to identify and extract relevant information from unstructured sources and enables lenders to scale their operations without increasing their staff or overhead.
Embedded capabilities make SMB financing accessible
Much like consumers, SMBs expect frictionless experiences akin to other fintech or consumer-facing platforms. Embedded finance addresses this need and provides a better way for community FIs to serve SMB borrowers without the typical risks.
Instead of managing all aspects of the SMB lending process (i.e., underwriting, risk assessment and loan servicing internally) financial institutions can partner with third-party providers specializing in purpose-built platforms for these areas. Taking this approach allows institutions to quickly respond to market demand for SMB financing while placing the burden of risk management and operational responsibility on trusted partners.
Embedded finance enables financial institutions to more effectively scale their infrastructure without investment; add fully formed SMB lending programs to their portfolios without developing new systems, hiring lending teams or taking on additional compliance burden; and gain a competitive edge in a rapidly evolving market, where speed is a necessity.
Applicants can directly apply for loans within existing digital banking platforms, creating a faster, more convenient way for businesses to access the capital they need. Ultimately, embedded finance helps simplify the borrowing process, offering institutions with an unobstructed point of entry into the market.
Opening doors to financing opportunities
Frequently, loan applications fail to meet a bank or credit union’s internal lending criteria and prevent FIs from providing financing to some SMB owners. This often results in missed opportunities to generate non-interest income and weakens relationships with SMB borrowers.
Partnering with an established “funding network” of trusted lenders allows FIs to refer applicants to alternative financing options if they fall outside of traditional credit requirements. Taking this approach gives SMBs access to the capital they need while FIs earn referral income and maintain valuable customer or member ties.
For instance, banks with $1–$5 billion in assets can deliver an additional 8%–20% in annual non-interest revenue. Integrating with embedded finance technology providers that double as funding partners not only expands SMB lending options but also prevents borrowers from seeking alternatives with competitors.
The bottom line
SMBs are an economic lifeblood for local communities -- accounting for 44% of the U.S. GDP and employing almost 50% of private sector employees working on Main Street – and community financial institutions are in a unique position to best support them.
Economic disruptions and uncertainty will continue to impact businesses across multiple industries, and those business owners will ideally turn to their local community banks and credit unions for quick and reliable financing options to either maintain or expand their operations. Financial institutions that have the right technology and tools in place to meet this demand within the communities they serve will be best positioned to capitalize on this market opportunity in their own backyard.
Will Tumulty is CEO of Rapid Finance, a leading provider of small business financing and enterprise lending solutions.