What limits the access to financing for SMEs

There are several reasons behind the SMEs limited access to finance, and in this article, we will explore some of them. Additionally, we will discuss how risk analysis based on alternative data can help SMEs in their pursuit to get financing.

Lack of a solid financial history

Alternative data credit scoring refers to the use of non-traditional data sources, such as Social Media, Psychometric Profiling, Digital Footprint, Transaction One of the main challenges faced by small and medium-sized companies is the lack of a solid financial history. Banks and traditional financial institutions often rely on financial history to assess the risk associated with a loan. If a business does not have a lengthy financial history or if it is full of fluctuations, it may be considered a higher risk and have fewer chances of obtaining financing.

Insufficient guarantees 

Banks may also require additional guarantees to grant loans to small and medium-sized companies. This can be a problem for SMEs, as they may have difficulties in providing sufficient guarantees to qualify for a loan. Guarantees can include physical assets such as properties or equipment, or even personal guarantees from business owners. 

Bureaucracy and difficult  procedures 

The process of obtaining a loan from a traditional bank can often be bureaucratic and time-consuming. Small and medium-sized companies may be discouraged by these procedures and the time required to obtain financing. This can have a negative impact on the development and growth of the business.

Lack of financial knowledge 

Many entrepreneurs and business owners may have limited experience in managing finances and understanding the banking system. This lack of financial knowledge can affect their ability to present clear financial information and negotiate loan terms. As a result, they may be perceived as more risky and may have difficulties in obtaining funding. 

How does alternative data risk analysis help SMEs? 

Alternative data risk analysis can be a solution for small and medium-sized companies facing difficulties in obtaining financing through traditional means. This approach involves using alternative data such as Social Media, Psychometric Profiling, Digital Footprint, Transaction Behavior and can provide a more complete picture of a business’s financial condition and associated risk. 

Furthermore, risk analysis based on alternative data can help reduce bureaucracy and lengthy procedures,  streamlining the approval process and providing a simpler and faster experience for both SMEs and Banks.

Access to financing for small and medium-sized companies in Romania can traditionally be limited due to factors such as lack of solid financial history, insufficient guarantees, bureaucracy, and lack of financial knowledge. 

However, risk analysis based on alternative data can provide a solution to these challenges.

Through the use of Alternative Data Credit Scoring, iFactor has a positive impact on SMEs and on the Business environment in general, increasing the access to finance and promoting a more dynamic financial environment for the Romanian and International Financial ecosystem . 

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