SME Lending

Definition

SME Lending denotes any of a wide array of loan or related financial products that provide financing to small or medium sized enterprises. A more granular approach defines Micro, Small and Medium Enterprises.

SME Definition Criteria

SME's can be distinguished by large corporate entities on the basis of a number of criteria

• Number of Employees
• Annual Sales / Turnover
• Fixed Assets
• Invested Capital

Business Models

• SME Lending is typically provided by banks. Additional traditional channels included some form Securitization
• Recent approaches (Digital SME Finance) include Peer-to-peer Lending (Marketplace lending or crowdfounding) and Supply Chain Finance

Dimensions that differentiate SME Lending Business Models:

• The underwriting process (Credit Origination)
• The Credit Portfolio Management approach
• The funding approach

Regulatory Status

• Capital requirements for SME exposures are set separately from corporate or retail exposures (see ASRF)

Accounting Status

• SME loans would be typically accounted under IFRS 9 (or CECL) accounting rules

SME Credit Risk Models

Similar with other credit assets, SME credit risk models will include

• various types of credit scorecards
• models producing Risk Parameters for internal risk management and regulatory purposes
• a specialized Credit Portfolio Model

See Also

• SME Credit Risk Literature