Advantages of P2B platforms in lending to SMEs

[Editor’s note: This is a blog post from Debitum Network. Debitum Network is a gold sponsor at LendIt Fintech Europe 2018, which will take place on November 19-20, 2018 in London.]

Politicians and economists often agree that small and medium-sized businesses are the backbone of both local and global economies. Statistics point to an even greater fact. In the EU and Australia, SMEs comprise 99.8% of all the firms and employ about 67% of the workforce. To tell the truth, SMEs might be rightfully called the economy, not just the backbone of it. A few other facts that follow are paradoxical. 2 years ago, International Finance Corporation (under World Bank) presented statistics that the gap for underfinanced SMEs around the world stood at 2.6 trillion $. One might expect, the situation got better in recent years with the global economy picking up and showing better and better numbers. On the contrary, most recent statistics from the same institution shows that the gap has widened to 5.2 trillion $. This points to the fact, that lending process for SMEs is effectively broken. However, a rise of P2P and P2B lending platforms in recent years brighten the picture as a lot of unfunded SMEs can get access to short term loans and continue their businesses unobstructed due to a shortage of funds. What advantages do they have, that banks lack?

P2P platforms make lending process global

P2B platforms can connect a business on one side of the world with an investor from another side of the world, and with a third party providing a service from yet another part of the world. All applications for loans can be made online, processed, assessed and the decision made within a matter of a few hours. Compare it to a similar process with the banks and the difference, that of speed and efficiency becomes clear. As an asset (loan) is put on the platform, investors can start investing within a matter of seconds. In such a way, a local business, somewhere in Eastern Europe can get funds from someone (or institutional investors) in UK or Germany and be able to use the collected amount for business operations within a couple of days. On Debitum Network platform, amounts are flexible and range from 10 Euros to 10 million Euros. This help to attract more investors to the platform, speeding up the collection of necessary funds for a specific asset on the platform.

P2B platforms simplify the assessment and financing process and make it faster

P2B platforms such as Debitum Network simplify the risk assessment of SMEs and the financing process. Loan decision process can be cut to 24 hours, while with traditional banks it may take up to a week. The processing of funds would take place in under a few days, while for banks it may take up to 4 weeks. Most small businesses cannot wait that long as operational costs climb up fast and can sink a business if funds do not reach it in time. P2B platforms do not neglect young businesses if they prove sales revenues exceeding 30 000 Euros, provide services and goods to other businesses and have been in business for at least 6 months. On the other hand, banks would not finance companies that have short business history, lack of real estate collateral or personal guarantee. Alternative finance P2B platforms will, similarly, not overload businesses with excessive paperwork and unnecessary provision of documentation (apart from going through KYC and AML).

Third parties help to decentralize the lending process

Traditional commercial banks centralize the process of financing remaining solo players in the lending process and consequently blocking SMEs from access to financing and depriving them of necessary funds for growth. Third parties make the financing process more transparent, faster and efficient. Decentralization opens the financing process as there is no single party that would control all the process of financing or performs all the services from start to finish all by itself. Debitum Network involves service providers that are local, know the local market and therefore are able to meet the needs of a specific business that applies for a loan in the specific location the service provider is based. Assurance of local expertise with the liquidity of global capital effectively repairs the lending process. 3rd party integrated P2B platform, such as Debitum Network may help institutional investors with their investments on the platform as those parties ensure constant monitoring and provision of insurance, which loan originators or source agents cannot qualitatively provide.

Innovative blockchain technology enables transparency, security, and reduction of costs

Debitum Network is a fintech company that seeks to incorporate innovative technologies in the lending process to make it faster, transparent and efficient. Utilizing blockchain based smart contracts would enable transparency and accountability on all parties in the lending process. Information recorded on the blocks will stay there and nobody will be able to tamper with, change it in any way or delete it. Deposit wallets, pooling accounts, third party services, and many more platform solutions are and will be integrated on our platform to make the lending process as effective, secure and transparent as possible. Money transfers, due to the blockchain, are much cheaper too. International transfers with commercial banks cost 40-50 $, while with the help of blockchain fintech platforms can reduce it to 1-2 $.

Final thoughts

Even though the gap of underfunded SMEs remains huge, increasing number of P2B platforms, such as Debitum Network opens a new niche for businesses to get loans for working capital, growth or equipment globally. The key advantages that these platforms have, and traditional banks don’t, would be the following: connecting investors with SMEs on a global platform, simplification of requirements and less paperwork, quicker assessment and financing, decentralization by the involvement of third parties in the financing process and innovative blockchain solutions. These things connect investors, borrowers and service providers on a single platform and help SMEs around the world to borrow for growth and investors earn attractive returns of 10-15% annually.

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