Fintech lender increases loan limit as customer demand accelerates

In a sign that fintech lending to business is growing rapidly and challenging the traditional banks, fintech lender Esme Loans is increasing the amount of money small and medium-sized enterprises (SMEs) can borrow.

The increase of the loan limit from £150,000 to £250,000 comes after the business, which is part of NatWest’s innovation unit, announced it had now lent £70m to UK SMEs.

Key to its success is how the company uses the latest technologies to automate processes, simplify loan application processes and speed up decision making.

Esme Loans emerged out of an idea in 2016, when NatWest started thinking about how it could add fintech to SME lending. Its NatWest Ventures unit incubated, launched and is scaling the business.

It went live to customers in May 2018, cutting the time it takes to apply for an SME loan to 10 minutes. The speed at which loans can be approved is possible through the use of the latest technology, including artificial intelligence (AI) to replace manual work and application programming interfaces (APIs) to connect with external data.

Esme Loans has grown quickly. In May this year, it reached £50m in the total value lent – but by the end of August, this had jumped to £70m. This followed £20m in lending in the space of 14 weeks. Following the increase in borrowing limit, the company expects this to be over £100m before the end of the year.

Andrew Ellis, head of NatWest Ventures, said Esme Loans is agile and can react quickly to customer demand. “Following a sustained increase in demand for Esme Loans, we have listened and engaged with our customers and are increasing the amount we can lend,” he said.

He added that the ease of use of the loan application interface, as well as the fast approvals, are key to attracting SME customers. “The digital application and rapid end processing are resulting in more UK SMEs choosing Esme Loans to grow their business,” said Ellis, adding that the company will continue to invest in technology to improve the service.

For example, it is looking to improve the proportion of loans that go through without any human involvement. About 10% of loans were approved without any human involvement from start to finish in the company’s early phase, as it deliberately limited the automation so it could monitor activity. Now, it wants to increase the proportion that involves no human contact. To this end, it is working with Microsoft to develop a data warehouse and introduce more AI.

The business loans market has proved successful for fintechs – particularly in the SME segment, where businesses often find it difficult to get loans.

According to a recent survey of 2,000 directors at UK SMEs by peer to peer lender Growth Street, almost half of UK SMEs (49%) would seek financing from non-bank lenders as they begin to better understand how they work.

When the survey results were released in April, Greg Carter, CEO of Growth Street, said non-bank funding options have a central role to play in the future of UK business banking.

“The fact that nearly half of British SMEs have looked beyond the banks for business finance is a symptom of profound changes affecting the financial services ecosystem,” he said. “As more and more SMEs realise there are real alternatives to traditional banks’ offerings, I expect this figure to keep rising.”

Esme’s fast-growing SME loans figure is evidence of this trend.