Finezza Blog

The Micro, Small and Medium Enterprise (MSME) market has been disadvantaged in the traditional banking ecosystem. Due to various factors, banks have prioritised credit to corporations and big businesses over small businesses.

According to statistics, India has a total of 633.9 lakh MSMEs in India, comprising 630.5 lakh micro-enterprises and 3.3 lakh small businesses. The rural-urban distribution comprises 324.9 lakh businesses in rural India and 309 lakh businesses in urban areas.

The lack of access to credit has driven small businesses to borrow from money lenders despite being charged higher rates. In terms of sheer numbers, this trend signifies a potential loss of revenues for lending businesses.

However, the situation is gradually changing due to the role played by digital technology in the lending ecosystem.

In this blog, we delve into the key barriers lending businesses face in processing loans for small business borrowers and how using cloud-based lending software is revolutionising small business financing.

Lending to Small Businesses: Some Challenges

Let’s first understand the key challenges experienced by lenders when underwriting for small business borrowers:

1. Lack of Credit History  

Traditional bank lenders weigh the creditworthiness of borrowers based on their previous credit history. Hence, those borrowers unable to demonstrate a credit history, such as small businesses, are denied credit opportunities.

2. Lack of Assets

Borrowers who can leverage assets as collateral have a chance of getting access to credit sans a credit history. However, many small businesses do not possess assets.

3. Diverse Needs 

Banks typically offer standardised products for borrowers. They prefer to serve loan applications of larger ticket sizes. However, small businesses have diverse needs. Thus, a one-size-fits-all approach does not fit. They may also require small loan amounts. Service providers were not equipped with the right technology to serve their needs.

What Is Cloud-Based Lending Software? 

Cloud-Based Lending Software is a comprehensive financial statement analysis solution which helps lenders accurately assess a borrower’s risk profile, irrespective of the scale of the business.

The solution leverages a mix of technologies like automation, cloud computing, optical character recognition, Artificial Intelligence (AI), and Machine Learning (ML) to completely automate all underwriting processes while addressing the current challenges of lenders.

Besides delivering efficiency, accuracy, and speed to the end-to-end financial analysis process, the software’s capabilities are completely transforming the borrowing narrative for small businesses.

Today, banks, neo-banks, and non-banking financial companies (NBFCs) are leveraging its benefits to tap the small business market and turn leads into lifelong customers.

5 Transformative Benefits for Small Businesses 

Here’s a look at how the smart use of cloud-based lending software enables lending businesses to serve small business borrowers effectively.

1. Accurate Cash Flow Analysis 

Since small businesses lack a credit history and substantial assets, cash flow lending is a potential solution for this audience. With access to bank documents, cloud-based lending software can comprehensively and accurately analyse the daily operational cash flow of a small business.

The software can categorise all transactions and enable lenders to know how much is being earned in revenues, what are the operational costs, and if there is any profit. Furthermore, the software comes with cross-analytical capabilities.

This functionality lets lenders cross-reference a borrower’s sales-related bank transactions with their Goods & Services Tax Returns (GSTR). This is a fool-proof method to determine the actual revenues of a business and its profitability, as sales and GSTR must correspond.

These capabilities enable lenders to pave the way for more cash flow lending, which can serve small businesses with a healthy bottom line.

2. Customisation of Products 

Most small businesses require loans of a small ticket size. On the other hand, the needs may vary drastically based on the growth stage of the business.

The use of cloud-based lending software enables the automatic customisation of loan products based on the financial information accessible.

Hence, it can tailor terms and conditions based on the real-time needs of a business, thus making loans more affordable and relevant to a small business’s needs.

3. Reduction of Errors and Omissions 

Cloud-based lending software enables end-to-end automation of the financial analysis process, not just the analysis process.

For instance, the software can scan over 700 types of documents, categorise all transactions into multiple categories, and deliver a creditworthiness score within minutes.

The workflow does not require extensive human intervention, except for higher value, strategic input. Thus, lending businesses can run with lean teams, reduce errors, duplications and omissions, and scale up operations quickly.

4. Quicker Turnaround on Loan Approvals 

Small businesses that require financing are usually hurrying to meet their borrowing needs. They apply to multiple lenders simultaneously and tend to jump at the first opportunity. Hence, lenders need to respond quickly and efficiently.

Cloud-based lending software allows them to process loan applications quickly, accurately, and efficiently.

5. Builds a Data-Driven Lending Culture 

Small businesses may not have the assets and the valuation of larger businesses and corporations. Hence, they encounter many biases and prejudices when attempting to access credit or capital.

The use of tools like cloud-based lending software brings a scientific approach to the process, with data driving the decisions rather than personal opinions and instincts. Businesses can collect massive amounts of data, which gives a more realistic understanding of the financial reality and potential of small business borrowers.

They can develop the right mindset and, in turn, products to meet their needs and unlock more relevant credit opportunities in the future.

Key Takeaway

By harnessing the benefits of cloud-based lending software, lending can effectively serve small businesses and turn them into long-standing customers. As small businesses scale, they can potentially deliver the business of a bigger ticket size to the lender.

Lenders making early investments in technology can grow their small business audience and cultivate a new pipeline of business.

Finezza offers a comprehensive set of tools and solutions to manage your lending portfolio. Our end-to-end lending management solutions are trusted by brands like ftcash, Hiranandani Financial Services, gromor Finance, and UC Inclusive Credit, to name a few.

Finezza’s intuitive bank statement analysis software is geared to analyse bank statements quickly and accurately and detect potential fraud.

Book a demo to know more.

Underwriting is an important process in lending operations. A lender’s ability to predict creditworthiness seals the fate of the loan. Whether it will be repaid promptly, or become a non-performing asset, or worse still result in loan fraud, is an outcome of underwriting efficiency.

Manual underwriting interventions are no longer sustainable, no matter how many resources companies invest in this process. Underwriting teams need access to the right technology to help companies keep pace with their goals of capturing greater market share while doing so swiftly and accurately.

The global loan origination software market, valued at $ 3.9 billion in 2021, is expected to grow to $ 9.5 billion by 2030.

Adoption of such cutting-edge credit underwriting software by forward-looking lenders can help them transform operations and keep pace with market demands.

In this blog, we outline key features in underwriting software, which value-add to a lender’s tech stack and help them gain a competitive edge in a crowded market.

What is Credit Underwriting Software?

A credit underwriting software is an end-to-end financial analysis solution, which aims to accurately gauge a borrower’s risk profile. A combination of technologies such as artificial intelligence (AI), Machine Learning (ML), cloud computing, automation and optical character recognition, has helped technology specialists develop a powerful solution to current lending challenges.

Use of this software is helping bring more efficiency and accuracy to the underwriting process. In turn, this approach reduces the risk of loan fraud and the rise of a lender’s Non-Performing Assets (NPAs). Low-risk, creditworthy borrowers can also be identified among a pool of loan applicants, who may or may not possess assets.

Today, a mix of banks, non-banking financial companies (NBFCs), and neo banks are leveraging underwriting software to solve their needs.

7 features of cutting-edge credit underwriting software 

Here is a snapshot of the direction in which credit underwriting software is evolving. Lenders are advised to seek these attributes when choosing the right platform for their operations.

1. A User-friendly Interface 

Underwriting teams tend to be made up of financial professionals and accountants, not techies. Hence, the interface needs to be user-friendly. Members of the underwriting team must be able to leverage the software, with ease, and arrive at underwriting decisions, quickly.

They must be able to reach out to the platform’s customer service quickly, in case of issues, and get solutions to ongoing challenges.

2. Cloud capabilities

A lender’s platform of choice must come with cloud capabilities. The best approach is to choose a platform that comes with a subscription-based pricing model. In this case, lenders are not stuck with the need to buy and upkeep on-premises software and hardware.

This is a cost-effective solution that stores data securely and makes it accessible on demand. With the adoption of hybrid and remote work, lenders can offer authorised access to team members in geographical locations, thus simplifying workflows.

Teams can work collaboratively, in real-time on the same projects, and close loan applications, quickly.

3. End-to-end Bank Statement Analysis 

A key deliverable of lending software is that it must be able to paint a comprehensive and realistic picture of a borrower’s financial status. The bank statement analysis is completely automated from end-to-end, right from automated data entry to offering a creditworthiness score for every borrower.

This process eliminates several manual processes traditionally performed by underwriting teams, thus completely freeing up their bandwidth for higher-value decision-making.

4. Stellar Fraud Detection Capabilities 

Another benefit of superior lending software is that it must be able to help lenders predict potential fraud early on. The software does this in multiple ways.

For instance, it must be able to detect unusual patterns in transactions which could be reg flags for irregular activities. It must be able to detect inconsistencies in documentation, which can be a red flag for fraudulent documents.

Identity fraud is another type of loan fraud where a borrower is impersonating another individual or business. A good lending software can weed out inconsistencies in nomenclatures, and other telltale signs.

5. Customisation of dashboards

A key benefit of credit underwriting software is that all transactions can be segregated into inflow and outflow categories, and further on under categories such as salaries, EMI repayments, and revenues.

Hence underwriters can leverage an extensive amount of well-categorised data to understand borrower trends and needs in detail.

This is a valuable resource to help businesses formulate strategies to grow their businesses and establish realistic goals.

6. Implementation of Compliance Requirements  

With financial regulatory authorities constantly introducing new guidelines, lenders must be able to implement these requirements with little effort.

A no-code lending software enables underwriters to make adjustments without needing to write fresh code, every time there is a change.

This is an important feature, as adherence to compliance translates to money saved in terms of penalties, as well as avoidance of a permanent shutdown due to non-compliance.

7. Evaluate Potential to Scale  

As businesses continue to scale, the lending software must be able to keep pace with its scalability needs. However, some lending solutions lack the flexibility to shift seamlessly between a small operation to a massive one.

Lenders are forced to choose one or the other to meet their real-time needs.

However, shifting from one ending software to another is not a sustainable shift. The best approach is to partner with a technology specialist, which offers flexibility of scale within the same platform.

Borrowers can seamlessly go from 50 borrowers to 50,000 and beyond, based on the pivot. The subscription costs will vary based on real-time needs, but this is the most cost-effective option.

The Takeaway

Smart use of tech-enabled solutions such as credit underwriting software, can help businesses streamline their operations. They can predict potential loan fraud and NPAs, and increase their audience pool with effective underwriting processes.

Lenders can partner with a technology specialist, and access the best technological solutions for their express needs.

Finezza offers a comprehensive set of tools and solutions to manage your lending portfolio. Our end-to-end lending management solutions are trusted by brands like ftcash, Hiranandani Financial Services, gromor Finance, and UC Inclusive Credit, to name a few.

Finezza’s intuitive bank statement analysis software is geared to analyze bank statements with speed, and accuracy and detect potential fraud.

Book a demo to know more.

The lending industry worldwide has grown extensively over the last few years. Lenders are on a spree to close the deficit in credit access within the business arena through digital innovation. 

As of 2022, the global digital lending platform market was valued at $ 9.56 Billion. It is projected to accelerate at a compound annual interest growth rate of 18.92% and grow to $ 37.77 billion by 2030. 

Access to innovative technology has enabled lenders to bring more efficiency and accuracy to their underwriting processes. However, the lending landscape is a dynamic one, demanding that software solutions serve the ever-changing needs of businesses. 

In this blog, we decode cloud-based lending software market trends that are helping lenders stay ahead of the curve with market demands. 

What is Cloud-based Lending Software? 

Lenders need to make key decisions every day based on available borrower data. As lenders scale their businesses, the pace at which they need to make accurate decisions becomes a growing challenge. 

Cloud-based lending software is a solution leveraged by banks, non-banking financial companies (NBFCs), and other financial institutions to help them make accurate, efficient, value-based decisions. 

The software combines several technologies, such as cloud computing, automation, artificial intelligence (AI), and machine learning, to boost the efficiency of lending operations. 

The role of cutting-edge lending software is growing extensively, with more lenders adopting it as the go-to solution to address several challenges.  

Cloud-based Lending Software: 6 Market Trends

A snapshot of the direction in which cloud-based lending software is evolving: 

1. End-to-end Process Automation 

Contemporary lending software is designed to automate the complete financial analysis process, thus wholly reducing human intervention. 

For instance, Optical Character Recognition enables text recognition within images, making it easy to extract, store, and process data. In Precisa’s cloud-based lending tool, documents present in over 700 file formats can be fed into the software and analysed within minutes. 

2. Centralised Data Access

The cloud computing capabilities of lending software enable easy access to millions of borrowers’ raw and processed data. Authorised lending team members can access the data from any location in real time with an Internet connection. This approach is conducive, especially for remote and hybrid teams. 

Thus, decision-making does not stop due to geographical barriers. Moreover, cloud-based lending software typically comes with a subscription-based pricing model, making it cost-effective. Lenders need not purchase and maintain on-premises software and hardware.

3. AI-driven Financial Analysis 

The use of AI in cloud-based lending software enables the detection of irregular patterns in bank transactions. The software can also identify fake documents, identity fraud, thus boosting fraud detection capabilities. 

These red flags are more challenging to detect purely with human intervention. All transactions can be categorised into inflow and outflow transactions, then further segregated into multiple categories. 

Thus, lenders can study data very minutely and splice and dice it as per their specific requirements. The software offers a creditworthiness score based on in-depth financial analysis. The score helps lenders make decisions quickly. 

4. Focus on code-free/ Low-code Compliance 

Financial regulators continually strengthen their guidelines due to the rise of loan fraud and non-performing assets in the lending industry. Implementing new guidelines is a challenge for lenders. 

The lending software industry is responding by introducing code-free/low-code platforms to enable accessible building and maintenance of compliance-focused processes. 

Lenders did not invest in customised code, requiring expertise and resources. Code-free platforms allow lenders to quickly adapt new regulations into their processes and stay compliant with fresh guidelines. This approach allows them to avoid penalties and other consequences of non-compliance. 

5. Product Customisation 

Product customisation is an important capability of contemporary lending software. The one-size-fits-all approach to credit access no longer works, especially with micro, small, and medium-sized enterprises entering the ecosystem. 

The software enables seamless adjustment of specs such as interest rates, fees, eligibility criteria, loan tenures, and repayment schedules. 

Lenders can also have templates for various loan products to customise a borrower’s real-time needs easily. This kind of flexibility is a win-win for both borrowers and lenders. 

6. Cross-analytical Capabilities 

Superior cloud-based lending software comes with cross-analysis capabilities, which allow lenders to cross-reference sales-related bank transactions with Goods & Services Tax Returns (GSTR). 

Companies must file GST returns for all goods and services sold. Hence, cross-analysis is a fool-proof way to understand the state of a borrower’s cash flows. Cross-analysis capabilities open the doors for lenders to offer cash-based lending to businesses that do not own assets. 

Healthy cash flows are a sign of revenues and potential profit. Thus a measure of creditworthiness. Lenders can now authenticate sales transactions more accurately. For instance, they can quickly weed out cases of circular transactions, which defeat the purpose of a healthy cash flow. 

Impact of Cloud-Based Lending Software

The use of cloud-based lending software is helping lenders achieve business goals more effectively. Here are the key impact areas:

• Lenders can process more loan applications with speed, efficiency, and accuracy, thus paving the way for the scalability of operations. 
• With enhanced fraud detection capabilities, lending businesses can be sustainable and profitable in the long term. 
• Lending businesses are more likely to predict non-performing assets early on based on objective analysis.  
• Lenders can customise all products and cater to a larger pool of diverse borrowers. They can tap new audiences and capture higher market share. 
• By staying compliant with the newest regulations by authorised bodies, lenders can avoid enduring consequences of regulatory defaults such as paying fines and penalties.  
• Lenders can run highly efficient operations with lean teams. They can free up human bandwidth for higher-value, strategy-focused tasks. 

The Takeaway

Lenders must be innovative, inclusive, and efficient in their operations to stay competitive. The use of cloud-based lending software is a game-changer for the industry, helping lenders close the gaps in the credit market and fuel more business. 

The best approach is to partner with a technology specialist and access AI-driven, cloud-based, cutting-edge solutions that service your needs.  

Finezza offers a comprehensive set of tools and solutions to manage your lending portfolio. Our end-to-end lending management solutions are trusted by brands like ftcash, Hiranandani Financial Services, gromor Finance, and UC Inclusive Credit, to name a few.

Finezza’s intuitive bank statement analysis software is geared to analyse bank statements quickly and accurately and detect potential fraud. 

Book a demo to know more.