Introduction
Regulatory hindrances and the time needed to secure the funds in commercial lending are still quite high and not feasible for corporates and businesses to fulfill their need in today’s competitive business world. A business can fulfil its operational purpose i.e., purchasing supplies, paying payrolls, acquiring assets, etc., and borrow funds from a financial institution for business expenses, covering costs or equipment purchases required for operations or expansion. The major requirement which commercial lending fulfils is capital expenditure of a business or the cost bore for expansion of business.
As per a survey by Allied Market Research, the global market size of commercial lending was $8,823.53 billion in 2020, which is going to be $29,379.83 billion in 2030. It is expected to grow further with a CAGR of 13.1% from 2022 to 2030, with the US holding more than 36% of it. This continuous growth shows how necessary commercial loans have become when it comes to any investments like investments in technology, equipment, businesses, etc
Why does the current process of commercial lending require a change?
Outdated legacy systems
Legacy systems make the process of commercial lending more complex. These outdated systems increase costs and time consumed, leading to hindrances in terms of scale of growth, while the organization is not able to harness latest innovations in the market. The pandemic ensured that all banks switched to digital. This led to fintechs using their tech expertise to educate bankers on the use of latest technology and digitized ways of lending
Rising competition
Due to the rise in current market competition, commercial banks need to uplift their product quality and personalize the consumer experience while promoting data analytics. To cope up with the changing technology, banks need to digitize and switch to the latest technologies to increase their customer base and create brand loyalty. Fintechs are challenging the banking industry through digitization. Data and technology are the two main aspects where fintechs are a big challenge for the legacy banking model of commercial lending.
A rise in the number of new small businesses and startups can be seen, as people are selling an existing business and moving to another venture. This has led to a drastic increase in the demand for commercial loans.
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