Reducing risk with a diversified finance mix
The crises of recent years have put resilience at the core of small and medium-sized enterprise (SME) business strategies. Lending platforms strengthen SMEs’ resilience by making access to loans less bureaucratic, diversifying their finance mix and improving their liquidity. As the founder and CEO of SME lending platform Teylor AG, Patrick Stäuble deals with small and medium-sized enterprises and with major international banks. He has noticed that resilience is seen as more important today than it was just a few years ago.
Europe has changed a lot as a result of the challenges it has faced in recent years – the COVID-19 pandemic, the war in Ukraine, the energy crisis and climate change. Businesses and governments alike need sustainable, resilient strategies that enable continued growth in a volatile environment. “Resilience” refers to a company’s ability to navigate crises and recover quickly from setbacks. In a business context, resilience may take the shape of diversified supply chains or proactive HR management, for example. “As a lending platform, at Teylor we see resilience first and foremost in terms of sound liquidity management. This is especially important for SMEs, which often have less of a financial buffer and fewer resources than large corporations”, explains Patrick Stäuble.
Diversified financing sources
SMEs traditionally borrow from their house bank. According to KfW Research, 90% of all SMEs have a house bank, and on average they have been doing business with the same institution for over 20 years. While these relationships have been forged over decades, focusing on a single finance source is extremely risky. Indeed, according to one Bundesbank study, more than 50% of all SME loan applications in Germany are rejected by traditional banks.
This makes it extremely important to also diversify your finance sources. Businesses with a diversified finance mix maintain long-term relationships with a range of financing partners, compare their offerings and choose the financing product that best meets the requirements of each particular case. For instance, factoring may be preferable to an overdraft for meeting short-term liquidity needs, but not all house banks offer a suitable factoring product.
By diversifying their financing sources, SMEs can take advantage of different financing partners’ respective strengths. For example, many house banks offer local, personal advice. This can help with financing assets like complex construction projects. However, there are some aspects of house banks that SMEs are less happy with, especially the amount of documentation required and the time it takes to process applications. With their streamlined application processes and fast processing times, lending platforms score highly in these areas.
For example, you can obtain a loan from Teylor within two working days, whereas it usually takes several weeks and often even months with a house bank. Obtaining a loan so much sooner means that projects can be implemented faster and resources deployed more efficiently, enabling a quicker return on investment – all of which also strengthens a business’s resilience.
A changing financing market
The lending industry has undergone major changes in recent years, and SMEs are already taking a best-in-class approach to many finance products. In other words, they choose the best available product, regardless of the provider. For instance, most SMEs have accounts or credit cards with different banks and lease their vehicles from a leasing company rather than via their house bank. There is every reason for SMEs to take the same best-in-class approach to borrowing.
To some extent, this is already happening. 64% of SMEs in a survey carried out by management consultants Roland Berger have either already applied for a loan from a provider other than a traditional house bank or are currently considering doing so. One reason for this is the generational change in SMEs – millennials are far more comfortable using digital services. In one Gallup poll, 73% of millennials said they prefer digital banking.
But Germany is still lagging behind when it comes to digital credit products for SMEs. Online platforms are already well-established alongside traditional lenders in the UK in particular, but also in places like the Baltic states. It is good to see that this trend is also now taking off in Germany, since having a wide range of different finance options is hugely beneficial for small and medium-sized enterprises.
Contact
Patrick Stäuble (author)
CEO
Teylor AG (Wallisellen/Schweiz)
www.teylor.io