Over 50% of MSMEs unable to secure business funding due to rigid lending, admin: survey

More than half – 63 per cent – of micro, small and medium-sized enterprises (MSMEs) in Thailand have been unable to secure sufficient, or any, funding on at least one or more occasions over the last five years, according to a survey by cloud banking platform Mambu.

The “Small business, big growth” report surveyed more than 1,000 MSME owners globally, including in Thailand, who set up a company and applied for a business loan in the last five years.

More than a third – 35 per cent – of Thai MSMEs had to rely on friends and family for loans, followed by 34 per cent who secured funding from traditional banks or building societies, and 25 per cent from specialist SME and commercial lenders.

Of the MSMEs unable to secure sufficient funding, 34 per cent were unable to hire effectively, 32 per cent were unable to upgrade or improve technology and 31 per cent experienced cash-flow issues or were unable to launch new products or services.

Mambu’s findings come amid a rise in alternative lending, as Thai MSMEs turn to challenger banks and fintechs to overcome common barriers, such as rigid lending criteria (44%), too much paperwork and administration (30%) and slow lending speeds (29%). The opportunity for new entrants is clear as the vast majority (95%) of these organisations say they are open to changing lenders for a better experience.

Nearly half of Thai MSMEs cited better financial options (46%) and better digital services (46%) as the top reasons to change lenders. Meanwhile, 43 per cent said they would switch for better borrowing benefits and incentives and 41 per cent for better customer service support.

Myles Bertrand, managing director APAC at Mambu, said small and medium-sized enterprises are significant contributors to Thailand’s economic activity and employment. There are 3.1 million generating 12.7 million jobs (71% of the country’s workforce).

“However, the inability to access business financing will adversely hamstring Thai MSMEs eyeing commercial or operational opportunities crucial for their continued growth,” Bertrand warned.

“With the business lending sector not keeping pace with the technological innovations transforming other financial service areas, Thai lenders are not positioned to offer solutions that best serve their MSME customers when they’re really needed.”

Financial institutions must do more to tackle challenging application processes for loans, he advised.

The research found that the time it takes to apply for a loan is a major influence on small businesses when choosing a lender. While long-term repayment plans were a leading consideration for 89 per cent of MSMEs in this decision-making process, 88 per cent also wanted low interest rates and 87 per cent preferred cash-out options.

Mambu Thailand general manager Pham Quang Minh said Thai MSMEs largely comprise trading and service companies – many in the tourism industry – which have been hard-hit by the Covid-19 crisis.

“Sustaining their operations and growth is key for the country’s own economic rebound as banks can play a key role by breaking down barriers to effective borrowing through more innovative service models, flexible repayment terms, and relaxed collateral requirements,” he said.

“It is then imperative that they adopt better digital lending services to enable faster processing of loans to cater to these key business segments navigating this post-pandemic recovery period.”

When it comes to improving the application process, 88 per cent of Thai MSMEs want to see more flexible loan conditions, 86 per cent are interested in tailored offers and services, and 83 per cent want payroll management.

Retail Economics CEO Richard Lim said the pandemic had ushered in enormous changes in how we work, play and shop, accelerating the democratisation of digital and with its repercussions still reverberating across society. But access to capital is an area where digitisation has matured at a much slower place, he pointed out.

“All too often, businesses looking to scale quickly and seize opportunities are choked by exhausting application processes. Stifled by slow and inefficient practices, current lending practices are no longer fit-for-purpose in today’s fast-paced, digital world,” Lim said.

Globally, the most common barriers to securing funding among SMEs are not enough starting capital (30%), too much paperwork and admin in the lending process (28%) and cash flow not being considered strong enough (27%).