ATLANTA–Two-thirds of small and medium enterprises (SMEs) in the U.S. were unable to secure enough, or any, funding to cover the needs of the business on at least one occasion, according to new report by Mambu, a cloud banking platform.
These findings come from the 2022 North American (NAM) Disruption Diaries, which surveyed over 1,000 small and medium businesses that applied for a SME loan in the last five years.
According to Mambu, key findings include:
- Top cited reasons that SMEs have faced in securing sufficient funding to cover the needs of the business include cash flow not considered strong enough (29%), not enough starting capital (27%) and slow lending speeds (25%)
- Family and friends are a top source of SME funding for nearly half (43%) of the respondents. Other sources include traditional banks or credit unions (34%), personal funds (30%)
- Working for oneself is the top motivation for starting a business in the US (40%)
- If unable to secure funding, US SMEs face cash flow issues, inability to launch products or services and hire talent, as well as trouble upgrading and improving their technology
- A very high percentage (88%) of US SMEs said they would switch lenders to ones with better services
- Low interest rates are highly important when choosing a lender for 77% of US SMEs, followed by long-term repayment plans (74%), cash-out options (74%) and a short application process (73%)
- Fewer SMEs in the US say securing funding is easy compared to Europe
- Flexibility on spending within the business, the ability to maintain control by not giving up equity and the ability to drive key business developments are some of the biggest benefits of gaining funding
Long-Term Relationships
“By financing SMEs, financial institutions are getting in on the ground floor of what could become a long-term profitable relationship,” said Robin Smith, regional VP-North America. “However, achieving growth through SME lending is difficult when the institution is relying on traditional credit decisioning, or outdated models to define a small- to mid-sized business.
”Small business relationships are very sticky. Once you secure a small business relationship as a traditional bank, you generate deposit relationships, you generate credit relationships, you generate ancillary service relationships,” Smith continued. “They’ll stay with you forever, and yet (traditional banks are) missing the mark on identifying what that market segment really is.”
The report can be found here.
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