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HomeNordic MarketsLoan Clampdown Challenges SMEs: Worldline Offers Vital Support through Growth Finance

Loan Clampdown Challenges SMEs: Worldline Offers Vital Support through Growth Finance

Regulations and a shaky economy are forcing the banking sector to tighten credit policies. SMEs are suffering because of it, and Growth Finance is exactly what the SMEs need.

The phrase “SMEs are the backbone of the economy” isn’t a trite truism. It’s a data-driven fact. A 2019 survey found that 98.9% of EU businesses in the non-financial economy are businesses with fewer than 50 employees, employing nearly 50% of the non-financial workforce, and contributing more than a third of Europe’s value added.

In Denmark, 99% of all businesses fall into the SME category, reports Dansk Industri, Denmark’s largest business organisation. High-growth companies within this category—companies whose average value added increased by at least 10% in the last three years—contributed DKK 100 billion (USD 14.7 billion), and 7 out of 10 of these companies have fewer than 20 employees.

Unfortunately, this dominant segment has been underserved when it comes to finance options when it comes to finance, particularly urgently needed finance. The lack of options stems from a combination of an unstable economy and increased restrictions since the COVID-19 pandemic. Rather, their hands are tied by the combination of an unstable economy and increased restrictions since the COVID-19 pandemic. A product like Growth Finance might be exactly what SMEs and the economy need right now.

“In Denmark, things got so bad that businesses started moving their business banking offshore, especially to the UK where regulations were less restrictive”

Mette Lykke Vibe
Head of Inside Sales Nordics, Worldline

Why traditional Lenders struggle to loan to SMEs

In the eurozone, the progressive tightening of credit standards has resulted in “significant weakness in lending dynamics,” says the European Central Bank’s report for its July 2023 bank lending survey (BLS). Banks simply don’t have the option to dive into risky loans as a result of “their cost of funds and balance sheet situation,” the report says.

The lack of historical credit data for new businesses makes it virtually impossible for traditional lenders to easily and accurately assess the loan’s risk. To overcome this, lenders demand a lengthy business plan, years of financial records, and collateral just to apply. The procedure can take weeks, adds burden to the small business, and is unlikely to succeed.
Things got worse during the COVID-19 pandemic, especially in Denmark, says Mette Lykke Vibe, Worldline Head of Inside Sales Nordics. Governments introduced regulations to prevent a rash of bad loans from destabilising the economy. The regulations were intended to salvage the macroeconomy, but they also put individual SMEs at risk.

In Denmark, things got so bad that businesses started moving their business banking offshore, especially to the UK where regulations were less restrictive, says Lykke Vibe. The squeeze on credit isn’t confined to Europe. It’s a worldwide phenomenon. In a single year, US small business owner opinion flipped from 77% confident to 77% unconfident in their ability to get a loan, according to a survey by Goldman Sachs.

Worldline fills the gap

Worldline, Europe’s leading payment provider, identified this gap in 2018 and recognised that it was in a position to solve it. The product Worldline developed is called Growth Finance and ties in directly with Worldline’s existing payments solutions, which include on-site terminals and online payments.

“The user experience when applying for a loan is extremely easy,” says Gustav Birgersson, product manager for Growth Finance. “Loans typically get approved within two to eight hours, and the money arrives in the customer’s bank account within a day.”

Worldline can offer such speeds because its decisions are data-driven. Credit evaluations are based on the merchant’s transaction history and turnover from Worldline payment solutions the customer is already using. Existing Worldline customers log in to their Worldline portal and can immediately see their credit score. Applying for the loan is as easy as clicking a button and filling in a few minor details.

To achieve this seamlessness, Worldline partnered with Swedish fintech Froda, which handles all backend aspects of the loan itself, including fraud assessments.
Partnering with a fintech instead of a bank was necessary because of the risk aspect. “Froda aggregates the loans, which allows them to take on the small ticket loans,” Birgersson tells NFM.

“For small businesses, a loan of DKK50,000 [USD7,350] can be a game-changer. The customer knows what their fees will be and the total repayment amount, and they can choose the time period over which they want to repay the loan.”

Gustav Birgersson
Product Manager, Growth Finance, Worldline

Easy, transparent loans with big results

“For small businesses, a loan of DKK50,000 [USD7,350] can be a game-changer,” says Birgersson. Conversely, the lack of these microloans can lead to catastrophe, as evidenced by the spate of businesses that failed after COVID-19 because of a lack of cash flow.
“We’ve also focused heavily on being transparent,” Birgersson says. “The customer knows what their fees will be and the total repayment amount, and they can choose the time period over which they want to repay the loan.”

Repayments are painless because Worldline simply deducts a percentage from each transaction made through Worldline’s system.

One customer, the owner of a small restaurant where even the Swedish Prime Minister occasionally eats, was so pleased with the solution that he took out three consecutive loans—the first for new furniture, the second for renovations, and the third for two new refrigerators. When Worldline asked for feedback, the customer said, “It’s so easy to take out the loan. You don’t really notice it because repayments are deducted automatically from your daily turnover.”

Another customer, this one a gentleman’s clothing store, moved to larger premises but needed more capital for the renovations. The store owner knew that a business loan from a bank wasn’t an option. “What you often must do is take out personal loans that you then lend to the company. However, there are limitations, and credit checks have become stricter,” the owner said. The store turned to Growth Finance product and repaid the loan off rapidly because its new location resulted in significantly higher revenue.

Automatic repayments mean less administrative hassle. For micro-entities with few resources and where “time is money,” the lack of administrative burden often equates directly to productivity and revenue.

“It’s extremely important for us to give back to society,” says Birgersson. “We feel the best way to do that is to develop great financial and payment products that cater to this vital segment.” Growth Finance’s success—a staggering loan portfolio growth rate of over 70% in the last year—is testament to both the product’s user-friendliness and the demand that exists for it.

The economy needs products like Growth Finance

Growth Finance is only available in the Nordics. However, given the ever-tightening policies of banks worldwide, it’s not unreasonable to believe that similar products will start appearing in other areas.

Banks must understandably maintain stability of the macroeconomy to avoid the levels of bad debt that threw us into the financial tumult of 2008. That means clamping down on loans. Unfortunately, the tourniquet solution severely impacts a segment that makes up almost 100% of non-financial businesses. The solution might end up becoming the problem as these small businesses start to fail because of a lack of cash flow.

Worldline does more than merely fill a gap. It adds much needed support for those merchants who are forced to tighten their purse strings for now until the economy is back on steady ground.

NFM Publishing Team
NFM Publishing Team
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