Despite the boom in new SMEs created in the last two years, access to funding remains a constant roadblock with 32 per cent of these businesses experiencing difficulty securing starting capital. — Photo courtesy of Mambu

In Southeast Asia, nearly half (48 per cent) of small-and-medium-sized enterprises (SME) had to rely on friends and family for loans, according to a new report from the cloud banking platform Mambu.

The ‘Small business, big growth’ report surveyed over 1,000 SME owners globally, who set up their company and applied for a business loan in the last five years. It reveals that reliance on personal networks has increased 11 per cent globally during the pandemic, with shrinking access to external capital for SMEs.

Of the Southeast Asian SMEs unable to secure sufficient funding, 40 per cent experienced cash flow issues, 38 per cent were unable to launch new products or services and 36 per cent were unable to hire effectively - a major impact amid the ‘Great Resignation’.

Despite the boom in new SMEs created in the last two years, access to funding remains a constant roadblock with 32 per cent of these businesses experiencing difficulty securing starting capital, rising to 33 per cent of SMEs launching soon.

In Viet Nam, according to statistics of the Ministry of Planning and Investment, by the end of 2020, the country had about 800,000 operating enterprises, of which 98 per cent are SMEs, attracting more than 5.6 million workers. The role of SMEs is very important to the national economy, but the SME sector is still facing many difficulties and obstacles in accessing funding.

Pham Quang Minh, General Manager of Mambu Vietnam, said: "There have been tens of thousands of SMEs that had to suspend or dissolve recently. This number has increased 10 per cent year-on-year in 2020. The latest statistics show that 32,700 SMEs have suspended or dissolved in the first two months of the year, an increase of 51.3 per cent year-on-year. The main reason is that SMEs could not secure funding to continue the business. While financial accessibility through traditional banks is still difficult because SMEs could not fully meet the lending application requirements. SMEs need a new way of funding to fill this financial gap”.

Mambu’s findings come amid a rise in alternative lending, as SMEs turn to challenger banks and fintech to overcome common barriers. The opportunity for new entrants is clear as the vast majority (92 per cent) of SMEs say they are open to changing lenders for different or simpler digital support. This number is larger in Southeast Asia (94 per cent).

Minh added: “The reason that SMEs are open to changing lenders also comes from the increasing number of fintechs appearing in the financial market. In Viet Nam, according to the State Bank of Viet Nam, the number of fintechs increased by nearly four times, from 40 companies (in 2016) to 150 companies (in 2020). They provide services such as payment, money transfer, lending and personal finance, offering SMEs many funding opportunities and different services. Business lenders need to harness the power of new technologies and offer the products and services that their customers want and need, in order to remain relevant and competitive.”

More than half of SMEs in Southeast Asia cite better borrowing benefits and incentives as the top reason to change lenders. Meanwhile, 52 per cent would switch for better financial options and 42 per cent for improved digital services.

Financial institutions must do more to tackle challenging application processes for loans. The research found that the length of time it takes to apply for a loan is a major influence on SMEs when choosing a lender. — VNS